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Determine a present value factor for an annuity

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Reference no: EM133155082

Question - The internal rate of return method is used by Testerman Construction Co. in analyzing a capital expenditure proposal that involves an investment of $40,152 and annual net cash flows of $8,000 for each of the 10 years of its useful life.

Present Value of an Annuity of $1 at Compound Interest

Year

6%

10%

12%

15%

20%

1

0.943

0.909

0.893

0.870

0.833

2

1.833

1.736

1.690

1.626

1.528

3

2.673

2.487

2.402

2.283

2.106

4

3.465

3.170

3.037

2.855

2.589

5

4.212

3.791

3.605

3.353

2.991

6

4.917

4.355

4.111

3.785

3.326

7

5.582

4.868

4.564

4.160

3.605

8

6.210

5.335

4.968

4.487

3.837

9

6.802

5.759

5.328

4.772

4.031

10

7.360

6.145

5.650

5.019

4.192

Required -

a. Determine a present value factor for an annuity of $1 which can be used in determining the internal rate of return.

b. Using the factor determined in part (a) and the present value of an annuity of $1 table above, determine the internal rate of return for the proposal.

Reference no: EM133155082

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