Determining the internal rate of return Dale Payne, CFO of Lavoy Enterprises, is evaluating an opportunity to
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Determining the internal rate of return Dale Payne, CFO of Lavoy Enterprises, is evaluating an opportunity to invest in additional manufacturing equipment that will enable the company to increase its net cash inflows by $600,000 per year.
The equipment costs $1,794,367.20. It is expected to have a five-year useful life and a zero salvage value. Lavoy’s cost of capital is 18 percent.
Required
a. Calculate the internal rate of return of the investment opportunity.
b. Indicate whether Lavoy should purchase the equipment.
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