Nobell Company is evaluating an investment of $1,000,000 which will yield net cash inflows of $142,369 per year for 10 years with no residual value.What is the internal rate of return?
Present value of annuity of $1:
$$\begin{array} { | r | r | r | r | r | }
\hline &{ 5 \% } & { 6 \% } &{ 7 \% } & { 8 \% } \
\hline 1 & 0.952 & 0.943 & 0.935 & 0.926 \
\hline 2 & 1.859 & 1.833 & 1.808 & 1.783 \
\hline 3 & 2.723 & 2.673 & 2.624 & 2.577 \
\hline 4 & 3.546 & 3.465 & 3.387 & 3.312 \
\hline 5 & 4.329 & 4.212 & 4.1 & 3.993 \
\hline 6 & 5.076 & 4.917 & 4.767 & 4.623 \
\hline 7 & 5.786 & 5.582 & 5.389 & 5.206 \
\hline 8 & 6.463 & 6.21 & 5.971 & 5.747 \
\hline 9 & 7.108 & 6.802 & 6.515 & 6.247 \
\hline 10 & 7.722 & 7.36 & 7.024 & 6.71 \
\hline
\end{array}$$

Question

Nobell Company is evaluating an investment of $1,000,000 which will yield net cash inflows of $142,369 per year for 10 years with no residual value.What is the internal rate of return?
Present value of annuity of $1:
$$\begin{array} { | r | r | r | r | r | } 
\hline &{ 5 \% } &  { 6 \% } &{ 7 \% } & { 8 \% } \
\hline 1 & 0.952 & 0.943 & 0.935 & 0.926 \
\hline 2 & 1.859 & 1.833 & 1.808 & 1.783 \
\hline 3 & 2.723 & 2.673 & 2.624 & 2.577 \
\hline 4 & 3.546 & 3.465 & 3.387 & 3.312 \
\hline 5 & 4.329 & 4.212 & 4.1 & 3.993 \
\hline 6 & 5.076 & 4.917 & 4.767 & 4.623 \
\hline 7 & 5.786 & 5.582 & 5.389 & 5.206 \
\hline 8 & 6.463 & 6.21 & 5.971 & 5.747 \
\hline 9 & 7.108 & 6.802 & 6.515 & 6.247 \
\hline 10 & 7.722 & 7.36 & 7.024 & 6.71 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of the cash flows equal to zero. The present value factor for 10 years at 7% is 7.024, which when multiplied by the annual cash inflow of $142,369 gives approximately $1,000,000, matching the initial investment.

Nobell Company Is Evaluating an Investment of $1,000,000 Which Will