Question

Miller Manufacturing company is considering the purchase of equipment. The equipment would cost $61,445.67 and is expected to generate annual cash inflows of $10,000 over its 10 year useful life. Based on this information, the internal rate of return for this investment opportunity is (Use the tables in the Chapter 16 appendix.) Multiple Choice

a. 12%.
b. 10%
c. 8%
d. 14%

Answer 1

b. 10%

Step-by-step explanation:

The IRR is the discount rate that equates the after tax cash flows from an investment to the amount invested.

The IRR can be found using a financial calculator:

Cash flow for year zero = $-61,445.67

Cash flow each year from year one to ten = $10,000

IRR = 10%

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