Read Publishing is considering the purchase of a used printing press costing $84

Question

Read Publishing is considering the purchase of a used printing press costing $84,200. The printing press would generate a net cash inflow of $37,422 a year for 3 years. At the end of 3 years, the press would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation. The present value factors of an annuity of $1.00 for different rates of return are as follows:

Cost of Capital

Period

8%

10%

12%

14%

16%

2

1.78

1.74

1.69

1.65

1.61

3

2.58

2.49

2.40

2.32

2.25

4

3.31

3.17

3.04

2.91

2.80

The investments internal rate of return (rounded to the nearest percent) is

Select one:

A. 10 percent.

B. 16 percent.

C. 14 percent.

D. 12 percent.

Cost of Capital

Explanation / Answer

Read Publishing is considering the purchase of a used printing press costing $84

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