Question

5-BB. A large lithium-ion phosphate battery pack for an industrial application is expected to save $20,000 in annual energy expenses over its six-year life. For a three-year simple payback period, the permissible capital investment is $60,000. What is the internal rate of return on this $60,000 battery pack if it has a residual value of $10,000 at the end of six years

Answer 1

Answer:

26.14%

Explanation:

Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested

IRR can be calculated using a financial calculator

Cash flow in year 0 = $-60,000

Cash flow each year from year 1 to 5 = $20,000

Cash flow in year 6 = $20,000 + $10,000 = $30,000

IRR = 26.14%

To find the IRR using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.

I hope my answer helps you