he internal rate of return method is used to analyze a $831,500 capital investment Determine a present value factor for an annuity of $1, which can be used in dete Based on the factor determined in (a) and the portion of the present value of an Year 10% 15% 20% 1 0.909 0.870 0.833 2 1.736 1.626 1.528 3 2.487 2.283 2.106 4 3.170 2.855 2.589 5 3.791 3.353 2.991 6. 4.355 3.785 3.326 4.868 4.160 3.605
he internal rate of return method is used to analyze a $831,500 capital investment Determine a present value factor for an annuity of $1, which can be used in dete Based on the factor determined in (a) and the portion of the present value of an Year 10% 15% 20% 1 0.909 0.870 0.833 2 1.736 1.626 1.528 3 2.487 2.283 2.106 4 3.170 2.855 2.589 5 3.791 3.353 2.991 6. 4.355 3.785 3.326 4.868 4.160 3.605
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The internal rate of return method is used to analyze a $831,500 capital investment proposal with annual net cash flows of $250,000 for each of the six years of its useful life.
a. Determine a present value factor for an annuity of $1, which can be used in determining the internal rate of return. Carry your answer out to three decimal places.
b. Based on the factor determined in (a) and the portion of the present value of an annuity of $1 table presented below, determine the internal rate of return for the proposal.
Year
10%
15%
20%
1
0.909
0.870
0.833
1.736
1.626
1.528
3
2.487
2.283
2.106
4
3.170
2.855
2.589
5
3.791
3.353
2.991
6
4.355
3.785
3.326
7
4.868
4.160
3.605
%
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Step 1
Internal rate of return is rate on which present value of cash flow is equal to the initial investment.
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