Question

Joetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.):

Investment required in equipment	$	31,000
Annual cash inflows	$	6,400
Salvage value of equipment	$	0
Life of the investment		15	years
Required rate of return		10	%

The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.

The internal rate of return of the investment is closest to:

Multiple Choice

• 21%

• 19%

• 17%

• 23%

Answer 1

Answer:

Option B: 19%

Calculations:

Year	Amount ($)
0	$      (31,000.00)
1	$          6,400.00
2	$          6,400.00
3	$          6,400.00
4	$          6,400.00
5	$          6,400.00
6	$          6,400.00
7	$          6,400.00
8	$          6,400.00
9	$          6,400.00
10	$          6,400.00
11	$          6,400.00
12	$          6,400.00
13	$          6,400.00
14	$          6,400.00
15	$          6,400.00
IRR	19%

Working Note:

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