Amatra Inc., has the opportunity to invest in new equipment that will cost $113,000. The net cash inflows for ten years equal $20,000 per year. What is the internal rate of return for the investment? A partial table of the present value of an annuity of $1 in arrears is as follows:

Question

Quizplus · Accepted Answer

To find the internal rate of return, we need to calculate the present value of the net cash inflows and compare it to the initial cost of the equipment. Using the given table, we can calculate the present value factor for an annuity of $20,000 per year for ten years at 12%: PV factor = (1-1/(1+0.12)^10)/0.12 = 5.6502.

Therefore, the present value of the net cash inflows is $20,000 x 5.6502 = $113,004. Since this is greater than the initial cost of $113,000, the internal rate of return is slightly greater than 12%.

The closest answer choice is C) 12%.