1 | Factor=Net initial investment/Incremental cash flow=113730/30000=3.791 | |
Number of years=Useful life of machine=5 years | ||
Use present value annuity table to find the IRR that corresponds to 3.791 in 5 year row | ||
Hence,Internal rate of return=10% | ||
2 | NPV=Present value of cash inflows-Net initial investment | |
Discount factor=10% | ||
Number of years=5 years | ||
Present value of cash inflows=Cash inflows*Discount factor at 10% for 5 years=30000*3.791=$ 113730 | ||
NPV=Present value of cash inflows-Net initial investment=113730-113730=0 | ||
3 | Factor=Net initial investment/Incremental cash flow=113730/27000=4.212 | |
Number of years=Useful life of machine=5 years | ||
Use present value annuity table to find the IRR that corresponds to 4.212 in 5 year row | ||
Hence,Internal rate of return=6% | ||
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