Figure 13-3
Glady, Inc., is considering the purchase of production equipment that costs £800,000. The equipment is expected to generate annual cash inflows of £250,000. The equipment is expected to have a useful life of five years with no salvage value. The firm's cost of capital is 14 per cent.
-Refer to Figure 13-3. The approximate internal rate of return of Glady's project is

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of cash flows from a project equal to zero. By calculating the IRR for the given cash flows (£250,000 annually for 5 years) and initial investment (£800,000), the IRR is approximately 16%.

Figure 13-3 Glady, Inc., Is Considering the Purchase of Production Equipment That