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# QUESTION 11 Present value of an Annuity of \$1 in Arrears ​ Periods 4% 6% 8%...

QUESTION 11

Present value of an Annuity of \$1 in Arrears

 Periods 4% 6% 8% 10% 12% 14% 1 0.962 0.943 0.926 0.909 0.893 0.877 2 1.886 1.833 1.783 1.736 1.690 1.647 3 2.775 2.673 2.577 2.487 2.402 2.322 4 3.630 3.465 3.312 3.170 3.037 2.914 5 4.452 4.212 3.993 3.791 3.605 4.433 6 5.242 4.917 4.623 4.355 4.111 3.889 7 6.002 5.582 5.206 4.868 4.564 4.288 8 6.733 6.210 5.747 5.335 4.968 4.639 9 7.435 6.802 6.247 5.759 5.328 4.946 10 8.111 7.360 6.710 6.145 5.650 5.216

Ruby Company is considering a project with an initial investment of \$300,000 that will yield annual net cash flows of \$90,580 and will be depreciated at \$75,000 per year over its 4 year life. What is the internal rate of return? (Note: Round the discount factor to three decimal places.)

 a. 12% b. 10% c. 8% d. 14% e. 6%

c.8%.

IRR is the rate at which the present value of cash outflow equal present value of cash inflows.

here,

present value of cash outflows = \$300,000

present value of cash inflows = \$90,580 * present value of annuity factor

at IRR

\$300,000 = 90,580 * present value of annuity factor

=> present value of annuity factor = 300,000 / 90,580

=>3.312.

from the table of annuity

we can see that for 4 periods, the factor 3.312 falls under 8%.

so the IRR for the given problem is 8%.

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