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Splish Brothers, Inc. is considering purchasing equipment costing $76000 with a 6-year useful life. The equipment...

Splish Brothers, Inc. is considering purchasing equipment costing $76000 with a 6-year useful life. The equipment will provide annual cost savings of $18487 and will be depreciated straight-line over its useful life with no salvage value. Splish Brothers requires a 10% rate of return.

                     Present Value of an Annuity of 1              
Period 8% 9% 10% 11% 12% 15%
6 4.623 4.486 4.355 4.231 4.111 3.784


What is the approximate internal rate of return for this investment?

9%

10%

11%

12%

0 0
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Answer #1

12%

At IRR, Present value of cash inflow = Present value of cash outflow

18487*X = 76000

X = 4.111

Hence, IRR = 12%

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