Question

Signet Pipeline Co. is looking to install new equipment that will cost $2,750,000. The cash flows expected from the project are $612,335, $891,005, $1,132,000, and $1,412,500 for the next four years. What is Signet's internal rate of return? (Do not round intermediate computations. Round final answer to the nearest percent.)

A) 11%
B) 13%
C) 15%
D) 17%

Answer 1

The internal rate of return (IRR) for Signet Pipeline Co.'s new equipment installation is approximately 17%.

Step-by-step explanation:

To calculate the internal rate of return (IRR) of an investment, we need to find the interest rate at which the present value of the cash inflows equals the initial investment. In this case, the initial investment is $2,750,000 and the cash flows for the next four years are $612,335, $891,005, $1,132,000, and $1,412,500. We can use a financial calculator or spreadsheet software to find the IRR, which is approximately 17%. Therefore, the answer is D) 17%.