Asked by Martevus Blount on May 09, 2024
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October Inc. is considering purchasing equipment costing $46300 with a 6-year useful life. The equipment will provide cost savings of $10950 and will be depreciated straight-line over its useful life with no salvage value. October Inc. requires a 10% rate of return. \quad \quad \quad \quad \quad Present Value of an Annuity of 1\text { Present Value of an Annuity of } 1 Present Value of an Annuity of 1
Period 8%9%10%11%12%15%64.6234.4864.3554.2314.1113.784\begin{array}{lllllll}\text { Period }&8\%&9\%&10\%&11\%&12\%&15\%\\6 & 4.623 & 4.486 & 4.355 & 4.231 & 4.111 & 3.784\end{array} Period 68%4.6239%4.48610%4.35511%4.23112%4.11115%3.784 What is the approximate internal rate of return for this investment?
A) 9%
B) 10%
C) 11%
D) 12%
Internal Rate of Return
A financial metric used to evaluate the profitability of an investment, indicating the annualized rate of return that makes the net present value of all cash flows from the investment equal to zero.
Rate of Return
The gain or loss of an investment over a specified period, expressed as a percentage of the investment's initial cost.
Cost Savings
A reduction in costs achieved through effective resource management, often resulting in increased profit margins.
- Master the ability to figure out and make sense of the internal rate of return and its influence on the desirability of investments.
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Learning Objectives
- Master the ability to figure out and make sense of the internal rate of return and its influence on the desirability of investments.
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