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Joetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.):
Investment required in equipment $ 32,500
Annual cash inflows $ 7,000
Salvage value of equipment $ 0
Life of the investment 15 years
Required rate of return 10 %
The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.
The internal rate of return of the investment is closest to:____________

Respuesta :

jepessoa

Answer:

IRR = 27.46%

Explanation:

Initial investment = $32,500

15 annual cash inflows of $7,000 + ($32,500 / 15) = $9,166.67

the required rate of return is used to calculate NPV, not IRR, so we will not use it.

In order to calculate the IRR, you have to use a financial calculator or an Excel spreadsheet and the IRR function:

IRR = 27.46%

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