Question
The internal rate of return (IRR) is between:
a) 5% and 6%
b) 6% and 8%
c) 8% and 10%
d) 4% and 5%
Present Value of $1 Periods l 1% 2% 3% 4% 5% 6% 896 | 1096 | 1296 | 1496 | 1696 | 1896 | 20% 0.990 0.980 0.9710.9620.9520.943 0.9260.909 0.893 0.8770.862 0.847 0.833 2 0.9800.9610.943 0.9250.907 0.890 0.857 0.8260.7970.769 0.743 0.718 0.694 3 0.9710.9420.915 0.889 0.864 0.840 0.7940.7510.7120.6750.641 0.609 0.579 4 0.961 0.9240.888 0.855 0.823 0.7920.735 0.6830.6360.5920.552 0.516 0.482 5 0.9510.906 0.863 0.822 0.784 0.747 0.681 | 0.6210.5670.5190.476 0.4370.402 6 0.942 0.888 0.837 0.790 0.746 0.705 0.630 0.5640.5070.4560.410 0.370 0.335 7 0.933 0.8710.813 0.760 0.711 0.665 0.583 0.5130.4520.4000.3540.314 0.279 8 0.923 0.853 0.789 0.731 0.677 0.627 0.540 0.4670.4040.3510.305 0.266 0.233 9 0.914 0.837 0.766 0.703 0.645 0.5920.500 0.4240.3610.3080.2630.225 0.194 10 0.9050.820 0.744 0.676 0.614 0.558 0.4630.386 0.3220.2700.2270.191 0.162 11 0.896 0.804 0.722 0.650 0.585 0.527 0.4290.350 0.2870.2370.195 0.162 0.135 12 0.887 0.788 0.701 0.625 0.557 0.497 0.3970.3190.2570.208 0.168 0.1370.112 13 0.8790.773 0.681 0.601 0.530 0.4690.368 0.2900.2290.182 0.145 0.1160.093 14 0.870 0.758 0.661 0.577 0.505 0.442 0.3400.2630.2050.1600.125 0.099 0.078 15 0.861 0.743 0.642 0.555 0.481 0.417 | 0.3150.2390.1830.140 0.1080.084 0.065 20 0.820 0.673 0.554 0.456 0.377 0.312 0.2150.1490.1040.073 0.051 0.0370.026 25 0.780 0.610 0.478 0.375 0.2950.2330.1460.0920.0590.038 0.024 0.016 0.010 30 0.742 0.552 0.412 0.308 0.231 0.1740.0990.0570.0330.020 0.012 0.0070.004 40 0.672 0.4530.307 0.208 0.142 0.097 0.046 0.0220.0110.005 0.003 0.001 0.001
Explanation / Answer
Internal rate of return factor = initial investment / annual Net cash inflow
Internal rate of return factor = 650,000 / 95,000 = 6.842
Now we will find the factor 6.842 in present value annuity of $ 1 table for N = 10 years
For 6 % factor is 7.360
For 8 % factor is 6.710
So the 6.842 lies in between
So it is between 6% and 8%
so the correct answer is B
