Joetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.): Investment...
Joetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.):
| Investment required in equipment | $ | 39,500 | |
| Annual cash inflows | $ | 9,800 | |
| Salvage value of equipment | $ | 0 | |
| Life of the investment | 15 | years | |
| Required rate of return | 10 | % | |
The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.
The internal rate of return of the investment is closest to:
Homework Answers
IRR = Present value of cash inflow = Present value of cash outflow
9800X = 39500
X (PV factor) = 39500/9800 = 4.031
IRR = 24%
The internal rate of return of the investment is closest to: 24%
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2.
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