Question

A labor saving device system save $2,000 per year for five (5) years. It can be installed at a cost of $8,000. At the end of the five years it is expected to be sold for $800. The rate of return on this planned investment is most nearly: O IRR 10.4% ○ IRR = 9.4% O IRR = 12.4% IRR-15.4%
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Answer #1

PV = $ 8000

IRR = r

Equating discounted future cash flows to PV:

8000 = 2000/(1 + r) + .... + 2000/(1 + r)5 + 800/(1 + r)5

solve for 'r':

r = 10.4%

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