Question
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Taffy industries is considering purchasing equipment costing $60,000 with a 6-year useful life. The equipment will...
Taffy industries is considering purchasing equipment costing $60,000 with a 6-year useful life. The equipment will provide cost savings of $14,600 and will be depreciated straight-line over its useful life with no salvage value. Taffy industries requires a 10% rate of return. What is the approximate internal rate of return for this investment? A). 9% B). 10% C). 11% D) 12%
Solutions
Expert Solution
At IRR, NPV is $0
| Year | Cash flow | × factor@ 12.0% | Present value |
| 0 | $ (60,000.00) | 1.0000 | $ (60,000.00) |
| 1 | $ 14,600.00 | 0.8929 | $ 13,035.71 |
| 2 | $ 14,600.00 | 0.7972 | $ 11,639.03 |
| 3 | $ 14,600.00 | 0.7118 | $ 10,391.99 |
| 4 | $ 14,600.00 | 0.6355 | $ 9,278.56 |
| 5 | $ 14,600.00 | 0.5674 | $ 8,284.43 |
| 6 | $ 14,600.00 | 0.5066 | $ 7,396.81 |
| $ - | |||
| NPV | 4.1114 | $ 26.55 |
At 12% NPV is almost $0.
Answer is 12%
please rate.
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