5 6 8 9 10 21 12 P12-5B. Cash Payback, Average Rate of Return, and Net Present Value Methods Lyle Company is con- sidering whether to enter into a franchise agreement that would give the company exclusive distribu- tion rights in a three-state region to a quality line of leisure spas. The franchise agreement will extend eight years and cost $600,000. There is no salvage value. The franchise cost will be amortized on a straight-line basis over eight years on both the books and the tax return. The following annual results are expected if the franchise is acquired: $230,000 15 10 17 Increase in annual cash revenue Increase in expenses: Cash operating expenses... Amortization Pretax income. Income tax expense (35%). Net income $95,000 75,000 . . 170,000 $ 60,000 21,000 $ 39,000 21 22 -3 24 25 26 Lyle uses a 12% hurdle rate when analyzing capital expenditure proposals using net present value. E. Compute the internal rate of return