Internal rate of return method The internal rate of return method is used by Royston Construction Co. in analyzing a capital expenditure proposal that involves an investment of $108,875 and annual net cash flows of $25,000 for each of the 6 years of its useful life. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 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. b. Using the factor determined in part (a) and the present value of an annuity of $1 table above, determine the internal r of return for the proposal. %
Internal rate of return method The internal rate of return method is used by Royston Construction Co. in analyzing a capital expenditure proposal that involves an investment of $108,875 and annual net cash flows of $25,000 for each of the 6 years of its useful life. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 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. b. Using the factor determined in part (a) and the present value of an annuity of $1 table above, determine the internal r of return for the proposal. %
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:Internal rate of return method
The internal rate of return method is used by Royston Construction Co. in analyzing a capital expenditure proposal that
involves an investment of $108,875 and annual net cash flows of $25,000 for each of the 6 years of its useful life.
Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
0.833
1
2
3
4
5
6
7
8
9
10
0.943
1.833
2.673
3.465
4.212
4.917
5.582
6.210
6.802
7.360
0.909
1.736
2.487
3.170
3.791
4.355
4.868
5.335
5.759
6.145
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
0.870
1.626
2.283
2.855
3.353
3.785
4.160
4.487
4.772
5.019
1.528
2.106
2.589
2.991
3.326
3.605
3.837
4.031
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.
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.
%
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