The Internal Rate of Return Method Is Used to Analyze

question 63

Essay

The internal rate of return method is used to analyze a $831,500 capital investment proposal with annual net cash flows of $250,000 for each of the six years of its useful life.
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(a)Determine a present value factor for an annuity of $1, which can be used in determining the internal rate of return.
(b)Based on the factor determined in (a) and the portion of the present value of an annuity of $1 table presented below, determine the internal rate of return for the proposal.
​ $$\begin{array} { c c c c } \text { Year } & 10 \% & 15 \% & 20 \% \\\hline 1 & 0.909 & 0.870 & 0.833 \\2 & 1.736 & 1.626 & 1.528 \\3 & 2.487 & 2.283 & 2.106 \\4 & 3.170 & 2.855 & 2.589 \\5 & 3.791 & 3.353 & 2.991 \\6 & 4.355 & 3.785 & 3.326 \\7 & 4.868 & 4.160 & 3.605 \\\hline\end{array}$$

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Definitions:

Alcohol

A psychoactive substance commonly found in beverages like beer, wine, and spirits, known for its intoxicating effects.

Central Nervous System

The part of the nervous system consisting of the brain and spinal cord, responsible for processing and transmitting information in the body.

Depressant

A substance that slows down the nervous system and can lead to decreased alertness, often used to treat insomnia, anxiety, or other mental health conditions.

Stimulant

Substances that increase alertness, attention, and energy by accelerating the activity of the central nervous system.