Lobel Machines Company is evaluating an investment of $1,100,000 which will yield net cash inflows of $197,062 per year for 7 years with no residual value
What is the internal rate of return?
Present value of ordinary annuity of $1:
5% 6% 7% 8%
1 0.952 0.943 0.935 0.926
2 1.859 1.833 1.808 1.783
3 2.723 2.673 2.624 2.577
4 3.546 3.465 3.387 3.312
5 4.329 4.212 4.100 3.993
6 5.076 4.917 4.767 4.623
7 5.786 5.582 5.389 5.206
8 6.463 6.21 5.971 5.747
9 7.108 6.802 6.515 6.247
10 7.722 7.36 7.024 6.71
A) 5%
B) 6%
C) 7%
D) 8%
B .B)
Initial investment $1,100,000
Present value of cash inflows 197,062
Ordinary Annuity PV factor ($1,100,000 / $197,062 ) $5.582
Net cash Annuity Present
Time inflow PV Factor Value
1-10 years Cash flow 197,062 5.582 $1,100,000
0 Initial Investment 1,100,000
Net present value $0
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