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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Internal rate of return method

The internal rate of return method is used by Leach Construction Co. in analyzing a capitalexpenditure proposal that involves an investment of $400.125 and annual net cash flows of$75,000 for each of the eight years of its useful life.
a. Determine a present value factor for an annuity of $1 which can be used in determiningthe internal rate of return.

b. Using the factor determined in part (a) and the present value of an annuity of $1 tableappearing Exhibit 5, determine the internal rate of return for the proposal.

To determine

Concept Introduction:

Capital budgeting is a technique to plan long term investment of funds in long term activities whose benefit released for several years.

Example: - Purchase of machineries, purchase of building for business purpose, setting of factories etc.

Net Present value refers to the difference between the present value of inflows and the present value of outflows associated with the projects.

Internal Rate of Return (IRR) is a technique to measure Present value of Cash Inflows through Time value of Money.

Requirement-1:

To Calculate:

Present value factor for an annuity of $1 Internal Rate of Return

Explanation

To Take Lower and Higher Discount Rate

For lower Discoun...

To determine

Concept Introduction:

Capital budgeting is a technique to plan long term investment of funds in long term activities whose benefit released for several years.

Example: - Purchase of machineries, purchase of building for business purpose, setting of factories etc.

Net Present value refers to the difference between the present value of inflows and the present value of outflows associated with the projects.

Requirement-2:

To Calculate:

Net Present Value

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