Question

The management of QMW Corporation is considering the purchase of a new machine costing $242,550. This new asset will generate an annual net cash flow of $70,000 for the next 4 years. What is the Internal Rate of Return for this investment, given the following info: Use the following data to help determine the answer:

Table for the Present Value of $1 at compound interest:

Year 6.0% 10.0% 12.0%

1  .943 .909 .893

2 .890 .826 .797

3 .840 .751 .712

  4 .792 .683 .636

5 .747 .621 .567

Table for the Present Value of an annuity of $1 at compound interest:

Year 6.0% 10.0% 12.0%

1 .943 .909 .893

2 1.833 1.736 1.690

3 2.673 2.487 2.402

4 3.465 3.170 3.037

5 4.212 3.791 3.605

Answer 1

Internal Rate of Return
Choose Numerator:	/	Choose Denominator:	=	Factor	Number of years	Internal rate of return
Initial investment	/	Annual cash inflows	=	Factor
242550	/	70000	=	3.465	4	6%

The present value of an annuity of $1 at compound interest for 4 years is 3.465 at 6%. Hence, the internal rate of return for the investment is 6%.