Internal Rate of Return MethodThe 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 InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83321.8331.7361.6901.6261.52832.6732.4872.4022.2832.10643.4653.1703.0372.8552.58954.2123.7913.6053.3532.99164.9174.3554.1113.7853.32675.5824.8684.5644.1603.60586.2105.3354.9684.4873.83796.8025.7595.3284.7724.031107.3606.1455.6505.0194.192a. 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 1b. 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 %

Requirement 1: The calculation of the present value factor for an annuity is as follows: The resultant table is as follows:Requirement 2: The present value of an annuity of $1 is 3.778. The useful life is 6 years. With this information, IRR can be obtained using the given present value table. IRR is 15%.

Answered: Internal Rate of Return Method The…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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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