The internal rate of return method is used by Carlisle Construction Co. in analy

Question

The internal rate of return method is used by Carlisle Construction Co. in analyzing a capital expenditure proposal that involves an investment of $94,392 and annual net cash flows of $19,000 for each of the eight years of its useful life.

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 answers to three decimal places.

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.
%

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

Explanation / Answer

Answer:a Present value factor: 4.968 at 12%

Answer:b

Year Cash Flows Amount ($) 0 Investment -94392 1 Annual Net cash inflow 19000 2 Annual Net cash inflow 19000 3 Annual Net cash inflow 19000 4 Annual Net cash inflow 19000 5 Annual Net cash inflow 19000 6 Annual Net cash inflow 19000 7 Annual Net cash inflow 19000 8 Annual Net cash inflow 19000 IRR 12.00%

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