Question

Your firm has the opportunity to buy a perpetual motion machine to use in your business. The machine costs $1,000,000 and will increase your profits by $75,000 per year. What is the internal rate of return?

Answer 1

7.5%

Step-by-step explanation:

A forever series formula for the interest rate is i = A / PV

Annual benefits = $75,000

Present value = $1,000,000

Thus, i = $75,000 / $1,000,000

i = 0.075

i = 7.5%

Therefore, the internal rate of return is 7.5%