Question

Home Security Systems is analyzing the purchase of manufacturing equipment that will cost $95,000. The annual cash inflows for the next three years will be: Year Cash Flow
1 $ 48,000
2 46,000
3 41,000

Answer 1

Answer:

internal rate of return is 20.463%

Explanation:

given data

Year   Cash Flow

1         $48,000

2         $46,000

3          $41,000

equipment cost = $95,000

to find out

Determine the internal rate of return

solution

we consider here  internal rate of return  is x

so we can say present value of inflows = present value of outflows

equate here

$95000 = $\frac{48000}{(x)} +\frac{46000}{(x)^2} +\frac{41000}{(x)^3}$  

solve it we get

x = 20.463 %

so internal rate of return is 20.463%