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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Internal rate of return

A project is estimated to cost $362,672 and provide annual net cash flows of $76,000 for nine years. Determine the internal rate of return for this project, using Exhibit 5.

To determine

Internal rate of return method:

Internal rate of return method is one of the capital investment method which determines the rate of return wherein the net present value of all the cash flows (both positive and negative) from an investment is zero. This method also called as the time-adjusted rate of return method, and it used to evaluate the different proposal’s expected rate of return.

To determine: The internal rate of return for the given project

Explanation

When the annual cash flows are equal, the internal rate of return can determined as follows:

Step 1: Determine a present value factor for an annuity of $1 is as follows:

Present value factor for an annuity of $1}=Amount to be investedEqual annual net cash flo

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