Blender Inc. purchased a new piece of equipment that cost $120,000. The equipment is will be used for 10 years and will have a salvage value of $10,000. The annual operating cash inflows will be $45,000, and the annual operating cash outflows will be $30,000. The tax rate is 21%, and the company requires an after-tax rate of return of 8%. Using Excel calculate the internal rate of return (IRR) of the equipment

Question

Quizplus · Accepted Answer

(($45,000 - $30,000) x (1 - .21)) + ((($120,000 - $10,000) ÷ 10) x .21) = $14,160 (years 1 - 9) $14,160 + $10,000 = $24,160 (year 10), -,120,000 (year 0)
=IRR(-$120,000, $14,160, $14,160, $14,160, $14,160, $14,160, $14,160, $14,160, $14,160, $14,160, $24,160) = 4.3%
((Cash in. - Cash out) x (1-tax rate)) + (((cost - sal. val.) ÷ years) x tax rate) = years 1 - 9, Years 1 - 9 + sal. val = (Year 10) - cost (Year 0)