Elizabeth Myers invested in a project that required an initial amount of $1,560, and returned one cash inflow of $12,000 at the end of the 18th year. A partial table of the present value of an annuity of $1 in arrears is as follows: What is the internal rate of return for this investment?

Question

Elizabeth Myers invested in a project that required an initial amount of $1,560, and returned one cash inflow of $12,000 at the end of the 18th year. A partial table of the present value of an annuity of $1 in arrears is as follows:  What is the internal rate of return for this investment?

Quizplus · Accepted Answer

To calculate the internal rate of return, we need to find the interest rate that makes the present value of the cash inflow equal to the initial investment. Using the table, we can find that the present value of $1 for 18 periods at an interest rate of 12% is 0.135. Therefore, the present value of $12,000 is:

PV = $12,000 x 0.135 = $1,620

Since the initial investment was $1,560, the internal rate of return is the interest rate that satisfies the equation:

$1,560 = $1,620 / (1 + i)^18

Solving for i, we get:

i ≈ 12%

Therefore, the best choice is C) 12%.

Elizabeth Myers Invested in a Project That Required an Initial