Lewington Corp. has purchased new equipment that cost $144,965. The equipment is expected to last three years and to provide cash inflows as follows:
Year 1 - $45,000
Year 2 - $60,000
Year 3 - ?
Assuming that the equipment will have an internal rate of return of 12%, what is the expected cash inflow for year 3?

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of cash flows equal to zero. By setting up the equation for NPV with the given IRR of 12% and solving for the unknown cash inflow in year 3, the expected cash inflow is calculated to be $80,000.