Lobel Machines Company is evaluating an investment of $1,550,000 which will yield net cash inflows of $220,672 per year for 10 years with no residual value.What is the internal rate of return? Present value of ordinary annuity of $1:
$$\begin{array} { | c | c | c | c | c | }
\hline & 5 \% & 6 \% & 7 \% & 8 \% \
\hline 1 & 0.952 & 0.943 & 0.935 & 0.926 \
\hline 2 & 1.859 & 1.833 & 1.808 & 1.783 \
\hline 3 & 2.723 & 2.673 & 2.624 & 2.577 \
\hline 4 & 3.546 & 3.465 & 3.387 & 3.312 \
\hline 5 & 4.329 & 4.212 & 4.100 & 3.993 \
\hline 6 & 5.076 & 4.917 & 4.767 & 4.623 \
\hline 7 & 5.786 & 5.582 & 5.389 & 5.206 \
\hline 8 & 6.463 & 6.21 & 5.971 & 5.747 \
\hline 9 & 7.108 & 6.802 & 6.515 & 6.247 \
\hline 10 & 7.722 & 7.36 & 7.024 & 6.71 \
\hline
\end{array}$$

Question

Lobel Machines Company is evaluating an investment of $1,550,000 which will yield net cash inflows of $220,672 per year for 10 years with no residual value.What is the internal rate of return? Present value of ordinary annuity of $1:
$$\begin{array} { | c | c | c | c | c | } 
\hline & 5 \% & 6 \% & 7 \% & 8 \% \
\hline 1 & 0.952 & 0.943 & 0.935 & 0.926 \
\hline 2 & 1.859 & 1.833 & 1.808 & 1.783 \
\hline 3 & 2.723 & 2.673 & 2.624 & 2.577 \
\hline 4 & 3.546 & 3.465 & 3.387 & 3.312 \
\hline 5 & 4.329 & 4.212 & 4.100 & 3.993 \
\hline 6 & 5.076 & 4.917 & 4.767 & 4.623 \
\hline 7 & 5.786 & 5.582 & 5.389 & 5.206 \
\hline 8 & 6.463 & 6.21 & 5.971 & 5.747 \
\hline 9 & 7.108 & 6.802 & 6.515 & 6.247 \
\hline 10 & 7.722 & 7.36 & 7.024 & 6.71 \
\hline
\end{array}$$

Quizplus · Accepted Answer

To find the internal rate of return (IRR), we need to match the present value of the annuity to the investment. The investment is $1,550,000, and the annual cash inflow is $220,672. Dividing the investment by the annual cash inflow gives us the present value factor: $1,550,000 / $220,672 ≈ 7.02. Looking at the table, a factor of approximately 7.02 for a 10-year period is closest to the 7% column, indicating an IRR of approximately 7%.

Lobel Machines Company Is Evaluating an Investment of $1,550,000 Which