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The internal rate of return method is used by Tester-man Construction Co. in analyzing a capital expenditure proposal that involves an investment of $113,550 and annual net cash flows of $30,000 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 5), determine the internal rate of return for the proposal.

Exhibit 5: Present Value of $1 at Compound Interest

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 5), determine the internal rate of return for the proposal.

Exhibit 5: Present Value of $1 at Compound Interest

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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