Tennessee Corporation is analyzing a capital expenditure that will involve a cas

Question

Tennessee Corporation is analyzing a capital expenditure that will involve a cash outlay of $104,904. Estimated cash flows are expected to be $36,000 annually for four years. The present value factors for an annuity of $1 for 4 years at interest of 10%, 12%, 14%, and 15% are 3.170, 3.037, 2.914, and 2.855, respectively. The internal rate of return for this investment is: a. 2% b. 2.4% c. 3%
d. 14% Tennessee Corporation is analyzing a capital expenditure that will involve a cash outlay of $104,904. Estimated cash flows are expected to be $36,000 annually for four years. The present value factors for an annuity of $1 for 4 years at interest of 10%, 12%, 14%, and 15% are 3.170, 3.037, 2.914, and 2.855, respectively. The internal rate of return for this investment is: a. 2% b. 2.4% c. 3%
d. 14%

Explanation / Answer

As per IRR

PV of Cash Outlay = PV of Cash Inflow

104904 = 36000*PVIFA (Rate,4)

PVIFA(rate,4) = 104904/36000

PVIFA(rate,4) = 2.914

In above question The present value factors for an annuity of $1 for 4 years at interest of 14% is 2.914

So IRR = 14%

Answer:

d. 14%

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