October Inc. is considering purchasing equipment costing $46300 with a 6-year useful life. The equipment will provide cost savings of $10950 and will be depreciated straight-line over its useful life with no salvage value. October Inc. requires a 10% rate of return. $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Present Value of an Annuity of } 1$
$\begin{array}{lllllll}
\text { Period }&8\%&9\%&10\%&11\%&12\%&15\%\
6 & 4.623 & 4.486 & 4.355 & 4.231 & 4.111 & 3.784
\end{array}$ What is the approximate internal rate of return for this investment?

Question

October Inc. is considering purchasing equipment costing $46300 with a 6-year useful life. The equipment will provide cost savings of $10950 and will be depreciated straight-line over its useful life with no salvage value. October Inc. requires a 10% rate of return.  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Present Value of an Annuity of } 1$
$\begin{array}{lllllll}
\text { Period }&8\%&9\%&10\%&11\%&12\%&15\%\
6 & 4.623 & 4.486 & 4.355 & 4.231 & 4.111 & 3.784
\end{array}$ What is the approximate internal rate of return for this investment?

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate at which the net present value (NPV) of an investment becomes zero. To calculate the IRR, we need to set the NPV formula equal to zero and solve for the discount rate. Using a financial calculator, the IRR for this investment is approximately 11%. Since the required rate of return is 10%, the investment is expected to generate a return greater than the required rate of return, making it a worthwhile investment. Therefore, the best choice is C) 11%.

October Inc \quad \quad \quad \quad \quad

October Inc $\quad$ $\quad$ $\quad$ $\quad$ $\quad$