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Internal Rate of Return Method The internal rate of return method is used by Testerman...

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Accounting

  1. Internal Rate of Return Method

    The internal rate of return method is used by Testerman Construction Co. in analyzing a capital expenditure proposal that involves an investment of $113,550 and annual net cash flows of $30,000 for each of the six years of its useful life.

    Present Value of an Annuity of $1 at Compound Interest
    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 3.465 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

    a. 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. fill in the blank 1

    b. 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. fill in the blank 2 %

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