Motel Corporation is analyzing a capital expenditure that will involve a cash outlay of $208,240. Estimated cash flows are expected to be $40,000 annually for seven years. The present value factors for an annuity of $1 for seven years at interest of 6%, 8%, 10%, and 12% are 5.582, 5.206, 4.868, and 4.564, respectively. The internal rate of return for this investment is

Question

Quizplus · Accepted Answer

To find the internal rate of return (IRR), we need to match the initial investment with the present value of the expected cash flows. The initial investment is $208,240, and the annual cash flow is $40,000. By multiplying the annual cash flow by the present value factor, we aim to find a product close to the initial investment. Using the given present value factors, the calculation closest to the initial investment is $40,000 * 5.206 (for 8%) = $208,240. Therefore, the IRR is closest to 8%.

Motel Corporation Is Analyzing a Capital Expenditure That Will Involve