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Internal Rate of Return Method The internal rate of return method is used by Testerman Construction Co. in analyzing a capital expenditure proposal that involves an investment of $51,390 and annual net cash flows of $18,000 for each of the four years of its useful life. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Determine a present value factor for an annuity of $1 which can be used in determining the Internal rate of return If required, round your answer to three decimal places. 2.854 x b. Using the factor determined in part (a) and the present value of an annuity of $1 table above, determine the internal rate of return for the proposal. % Average Rate of Return-Cost Savings Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $100,000 with a $9,000 residual value and a ten-year life. The equipment will replace one employee who has an average wage of $23,730 per year. In addition, the equipment will have operating and energy costs of $4,820 per year. Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment. If required, round to the nearest whole percent. 10 X %