(Ignore income taxes in this problem.) Joetz Corporation has gathered the following data on a proposed investment project:
The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.
-The internal rate of return of the investment is closest to:

Question

(Ignore income taxes in this problem.) Joetz Corporation has gathered the following data on a proposed investment project:
  The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.
-The internal rate of return of the investment is closest to:

Quizplus · Accepted Answer

Factor of the internal rate of return = Investment required ÷ Annual net cash inflow
= $30,000 ÷ $6,000 = 5
This is closest to the present value of an annuity over 15 years at 18%. Therefore the internal rate of return is closest to 18%.

(Ignore Income Taxes in This Problem