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    Compute Internal Rate of Return in Excel

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    Home security Systems is considering an acquisition of some computer equipment costing $40,000. The equipment is expected to increase annual cash inflows for the next three years as follows:

    Year Increase in Cash Flow
    1 $20,000
    2 18,000
    3 13,000

    What is the internal rate of return using Excel. If the cost of capital is 12%, should the equipment be purchased? Explain.

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    Solution Summary

    The solution is in Excel attached and uses the function IRR to solve and then interprets the result.