Question

The internal rate of return method is used by Testerman Construction Co. in analyzing a capital expenditure proposal that involves an investment of $101,700 and annual net cash flows of $18,000 for each of the 10 years of its useful life.

Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.456	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.353	2.991
6	4.917	4.355	4.111	3.785	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

. Determine a present value factor for an annuity of $1 which can be used in determining the internal rate of return. If required, round your answer to three decimal places.

. Using the factor determined in part (a) and the present value of an annuity of $1 table above, determine the internal rate of return for the proposal.

Answer 1

Internal Rate of Return investment Requires Life of the Machine Annual Cash Flows PVA Factor at IRR for 10 Years =101700/18000 101700 10 18000 5.650 Answers: Present Value Factor 5.650 Internal Rate of Return (From Table) 12%