Westmont Publishing is considering the purchase of a used printing press costing $75,200. The printing press would generate a net cash inflow of $31,310 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:
The investments internal rate of return (rounded to the nearest percent) is:

Question

Westmont Publishing is considering the purchase of a used printing press costing $75,200. The printing press would generate a net cash inflow of $31,310 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:
 The investments internal rate of return (rounded to the nearest percent) is:

Quizplus · Accepted Answer

Present value factor of the annuity = Initial investment of $75,200 / Annual cash flow of $31,310 = 2.40179. At Period = 3, the cost of capital is 12% (percent).

Westmont Publishing Is Considering the Purchase of a Used Printing