Question
1. Disadvantages of the annual rate of return method include all of the following except that no consideration is given as to when the cash
1. Disadvantages of the annual rate of return method include all of the following except that
no consideration is given as to when the cash inflows occur.
management is unfamiliar with the information used in the computation.
it relies on accrual accounting numbers instead of actual cash flows.
it does not consider the time value of money.
2. Sunland, Inc. is considering purchasing equipment costing $52000 with a 6-year useful life. The equipment will provide annual cost savings of $12649 and will be depreciated straight-line over its useful life with no salvage value. Sunland requires a 10% rate of return.
Present Value of an Annuity of 1 | ||||||
Period | 8% | 9% | 10% | 11% | 12% | 15% |
6 | 4.623 | 4.486 | 4.355 | 4.231 | 4.111 | 3.784 |
What is the approximate internal rate of return for this investment?
12%
11%
10%
9%
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