# The internal rate of return method is used by Merit Construction Co. in analyzing a capital expenditure proposal that involves

## Question:

The internal rate of return method is used by Merit Construction Co. in analyzing a capital expenditure proposal that involves an investment of \$ 82,220 and annual net cash flows of \$ 20,000 for each of the six years of its useful life.

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 appearing in this chapter (Exhibit 2), determine the internal rate of return for the proposal.

Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment...
Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...

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Related Book For

## Financial and Managerial Accounting

ISBN: 978-1285078571

12th edition

Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac

Question Details
Chapter # 25- Capital Investment Analysis
Section: Exercises
Problem: 16
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