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Question 5-E: The cash flow diagram below has an internal rate of return o...

The cash flow diagram below has an internal rate of return of 35%. What is the value of Y if perpetual service is assumed? (5.3)

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$1,000,000 + $500,000(P/F, 35%, 1) −$500,000(P/F, 35%, 2) =\frac{\$Y}{0.35} (P/F, 35%,2)

$1,000,000 + $500,000(0.7407) − $500,000(0.5487) = \frac{0.5487Y}{0.35}
$1,096,000 = 1.5677Y
Y = $699,113

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