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    Preston Corporation: Computing the Internal Rate of Return

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    Preston Corporation is evaluating its potential investment in a $225,660 piece of equipment with a 3 year life and no salvage value. The company anticipates that pre-tax cash flows in each of the three years will equal 22 percent, 44 percent, and 66 percent, respectively, of the investment's face value. The tax rate is 28 percent. Pre-tax cash flows, discounted at 10 percent are $427,697, undiscounted after-tax cash flows are $279,185, and after-tax cash flows, discounted at 10 percent, are $225,660. What is the internal rate of return?

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    At internal rate of return, the discounted after tax cash flows are equal to the ...

    Solution Summary

    The solution computes the internal rate of return.

    $2.19

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