Question

If a manufacturer of electronic devices invests $670,000 in equipment for making compact piezoelectric accelerometers for general purpose vibration measurement, estimate the rate of return from revenue of $225,000 per year for 10 years and $70,000 in salvage value from the used equipment sale in year 10.

Answer 1

The rate of return from revenue of the electronic device is  31.65%.

We are to determine the internal rate of return of investment of this investment. The internal rate of return is the interest rate that equates the cost of the investment, to the present value of the cash flows.

In order to determine the internal rate of return, the following information is needed:

The cost of the electronic device: $670,000

Revenue: 1 - 9 = $225,000

10 = $225,000 + $70,000 = $295,000

These values can be imputed into a financial calculator. When imputed into the financial calculator, the value of the IRR is 31.65%.

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