Pendleton Parks is investigating the purchase of new maintenance equipment. The equipment would cost $5,000 and...

Pendleton Parks is investigating the purchase of new maintenance equipment. The equipment would cost $5,000 and have a five year life. It would save $500 per year in cash operating costs. In addition, because it would enhance the attractiveness of various parks and facilities, management estimates there would be an average of 1,000 additional paying visitors per year. The average contribution margin realized per visitor is $1.

The approximate internal rate of return promised by this investment = _________%

Please explain and use formula for IRR

Expert Solution

NOTE POINTS:

1.What Is Internal Rate of Return – IRR? The internal rate of return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments. The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.ie.,(AT IRR NPV IS ZERO)

2.cash flows taken as same for every year{ $500+(1000*$1) }=$1500.

ekkarill92 answered 2 years ago

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