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Internal Rate of Return Richins Company produces automobile engine parts. The company is examining the possibility...

Internal Rate of Return

Richins Company produces automobile engine parts. The company is examining the possibility of investing in a new production system that will reduce the costs of the current system. The new system will require a cash investment of $11,551,968 and will produce net cash savings of $1,800,000 per year. The system has a projected life of 10 years.

Required:

Calculate the IRR for the new production system. For discount factors use Exhibit 12B-2. Round your answer to the nearest whole percentage.
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Answer #1
PV factor for Internal rate of return = Cash investment / Net cash savings
PV factor for Internal rate of return = 11551968/1800000= 6.41776
The PV factor 6.41776 for 10 years is closest to 9%
Internal rate of return (IRR) = 9%
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