Below is a table for the present value of $1 at Compound interest. Year Year 6%

Question

Below is a table for the present value of $1 at Compound interest.
Year

Year      6%     10%       12%

1 .       .943   .909      .893

2.         .890 .826      .797

3.         .840   .751       .712

4.       .792     .683      .636

5.        .747    .621       .567

Below is a table for the present value of an annuity of $1 at compound interest.

Year 6%        10%       12%

1      .943       .909     .893

2     1.833     1.736     1.690

3     2.673     2.487    2.402

4     3.465     3.170    3.037

5     4.212     3.791     3.605

Using the tables above, what would be the internal rate of return of an investment of $168,140 and would generate an annual cash inflow of $70,000 for the next 3 years?
a. 10%

b. 12%

c. cannot be determined from the data given.

d. 6%

Explanation / Answer

At IRR, NPV = 0 So we have -168,140 + PV of CFs of $70000 for 3 yrs = 0 ie -168,140 + 70,000*X = 0 S0 X = 168,140/70,000 = 2.4020 From given table, we see that for 12% for 3 yrs, X= 2.4020 So IRR = 12% ....Ans (b)

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