An investment that cost $30,000 provided annual cash inflows of $9,000 per year for five years.The desired rate of return is 10%.The internal rate of return from the investment is: (PV of $1 and PVA of $1)(Use appropriate factor(s)from the tables provided.)

Question

Quizplus · Accepted Answer

To calculate internal rate of return, we need to find the discount rate that makes the present value of the cash inflows equal to the initial investment. Using the PV of $1 and PVA of $1 tables, we can calculate the present value of the cash inflows to be $36,145. From the formula for internal rate of return, we can solve for the rate that makes the present value equal to the initial investment: 
-30,000 + 9,000(PVAFR%,5) = 0
PVAFR%,5 = 3.375
From the PVA of $1 table, we can see that the factor for 10% and 5 years is 3.7908. Therefore, the internal rate of return is greater than 10%. Hence, choice C is the best choice.

An Investment That Cost $30,000 Provided Annual Cash Inflows of $9,000