IRR on an Investment/Cash Payback Period
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Bobs, Inc. is thinking about purchasing equipement costing $30,000 with a 6-year useful life. The equipment will provide cost savings of $7,300 and will be depreciated straight-line over its useful life with no salvage value. Bobs, Inc. requires a 10% rate of return. What is the approximate internal rate of return for this investment?
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ALSO:
If an asset costs $70,000 and is expected to have a $10,000 salvage value at the end of its 10-year life, and generates annual net cash inflows of $10,000 each year, what is the cash payback period?
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Solution Summary
The solution explains how to calculate the IRR on an investment and the cash payback period.
Solution Preview
The Internal Rate of Return (IRR) is the rate that will make the present value of cash flows equal to initial investment. The depreciation provides a tax shield and since there is no tax rate given, we can ignore depreciation. The cash flows are -30,000 ...
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