Which of the following is the approximate internal rate of return for an investment that costs $33,550 and provides a $5,000 annuity for 10 years?

Question

Quizplus · Accepted Answer

The internal rate of return is the rate at which the present value of cash inflows equals the cash outflows.It is the rate that will produce a zero net present value.
Net present value = (Expected annual cash flows x PV factor)- Cost of investment
$0 = ($5,000 x PV factor)- 33,550
$33,550 = $5,000 x PV factor
PV factor = $33,550 ÷ $5,000 = 6.71
Using Appendix Table 2 (n = 10),this factor is closest to the 6.710081 factor for i = 8%.

Which of the Following Is the Approximate Internal Rate of Return