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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.

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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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