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The following data pertain to an investment project (Ignore income taxes.): Investment required $ 34,055 Annual savings $5,000 Life of the project 15 years Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. The internal rate of return is closest to:

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Answer: 12%

Explanation:

The Internal Rate of return would be the discount rate that equates the NPV to 0.

Using Excel, you can calculate it by using the =IRR function and then imputing the table values as shown in the attachment.

The IRR will be 12%.

To confirm this;

Savings is constant so is an annuity.

Present Value of savings = 5,000 ( PVIFA 12%, 15 years)

= 5,000 * 6.811

= $34,055

NPV = Present Value of Savings - Investment

= 34,055 - 34,055

= $0

IRR = 12%

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