Tennessee Corporation is analyzing a capital expenditure that will involve a cash outlay of $109,332. Estimated cash flows are expected to be $36,000 annually for 4 years. The present value factors for an annuity of $1 for 4 years at interest of 10%, 12%, 14%, and 15% are 3.170, 3.037, 2.914, and 2.855, respectively. The internal rate of return for this investment is

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of the cash flows equal to zero. By dividing the initial investment ($109,332) by the annual cash flow ($36,000), we get approximately 3.037, which corresponds to the present value factor for 12%.

Tennessee Corporation Is Analyzing a Capital Expenditure That Will Involve