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The internal rate of return method is used by Testerman Construction Co. in analyzing a capital expenditure proposal that involves an investment of $41,110 and annual net cash flows of $10,000 for each of the six years of its useful life. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 15% 20% 0.870 0.833 1.736 1.626 1.528 2.487 2.283 2.106 3.170 2.855 2.589 3.791 3.353 2.991 4.355 3.785 3.326 5.582 4.868 4.160 3.605 6.210 5.335 4.487 3.837 6.802 5.759 4.772 4.031 7.360 6.145 5.650 5.019 4.192 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 place a 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 0.909 12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328

The internal rate of return method is used by Testerman Construction Co. in analyzing a capital expenditure proposal that involves an investment of $41,110 and annual net cash flows of $10,000 for each of the six years of its useful life. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 15% 20% 0.870 0.833 1.736 1.626 1.528 2.487 2.283 2.106 3.170 2.855 2.589 3.791 3.353 2.991 4.355 3.785 3.326 5.582 4.868 4.160 3.605 6.210 5.335 4.487 3.837 6.802 5.759 4.772 4.031 7.360 6.145 5.650 5.019 4.192 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 place a 1 2 3 4 5 6 7 8 9 10 0.943 1.833 2.673 3.465 4.212 4.917 0.909 12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328

Essentials Of Investments
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
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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 $41,110 and annual net cash flows of $10,000 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% 0.909 0.833 1.736 1.528 2.487 2.106 3.170 2.589 3.791 2.991 4.355 3.326 4.868 4.564 3.605 5.335 4.968 3.837 5.759 5.328 4.031 7.360 6.145 4.192 5.650 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. 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 0.893 1.690 2.402 3.037 3.605 4.111 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 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. %
Transcribed Image Text: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 $41,110 and annual net cash flows of $10,000 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% 0.909 0.833 1.736 1.528 2.487 2.106 3.170 2.589 3.791 2.991 4.355 3.326 4.868 4.564 3.605 5.335 4.968 3.837 5.759 5.328 4.031 7.360 6.145 4.192 5.650 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. 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 0.893 1.690 2.402 3.037 3.605 4.111 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 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. %
Expert Solution
Step 1: Analysis

First we need to calculate present value factor( PVF) for annuity $1 by using the equation below.

Present Value Factor( PVF) =fraction numerator I n i t i a l space I n v e s t m e n t over denominator a n n u a l space n e t space c a s h space f l o w s end fraction

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