The Internal Rate of Return Method Is Used to Analyze

Essay

The internal rate of return method is used to analyze a $831,500 capital investment proposal with annual net cash flows of $250,000 for each of the six years of its useful life.
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(a)Determine a present value factor for an annuity of $1, which can be used in determining the internal rate of return.
(b)Based on the factor determined in (a) and the portion of the present value of an annuity of $1 table presented below, determine the internal rate of return for the proposal.
​ $$\begin{array} { c c c c } \text { Year } & 10 \% & 15 \% & 20 \% \\\hline 1 & 0.909 & 0.870 & 0.833 \\2 & 1.736 & 1.626 & 1.528 \\3 & 2.487 & 2.283 & 2.106 \\4 & 3.170 & 2.855 & 2.589 \\5 & 3.791 & 3.353 & 2.991 \\6 & 4.355 & 3.785 & 3.326 \\7 & 4.868 & 4.160 & 3.605 \\\hline\end{array}$$