| Home Security Systems is analyzing the purchase of manufacturing equipment that will cost $54,000. The annual cash inflows for the next three years will be: |
| Year | Cash Flow |
| 1 | | $ | 27,000 | |
| 2 | | | 25,000 | |
| 3 | | | 20,000 | |
| |
| Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the financial calculator method. |
| a. | Determine the internal rate of return. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) |
| Internal rate of return | % |
| b. | With a cost of capital of 12 percent, should the equipment be purchased? |
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Appendix Present value of an annuity of $1, PV IFA PVAA Percent 10 0.971 0.935 0.893 1.759 1.736 1.713 1.690 2.531 2.487 2.444 2.402 2.941 4 3.630 4.452 3.546 4.329 5.076 3.465 3.791 4.355 3.696 4.231 3.890 5.601 6.472 7.325 6 6.728 6.002 5.747 6.247 5.995 5.759 5.537 5.328 5.889 6.207 8.760 6.495 5.938 7.161 6.814 6.492 6.194 7.487 7.103 6.750 6.424 7.786 7.367 6.982 6.628 8.061 7.606 7.191 6.811 8.313 7.824 7.379 6.974 8.544 8.022 7.549 7.120 8.756 8.201 7.702 7.250 8.950 8.365 7.839 7.366 9.129 8.514 7.963 7.469 9.823 9.077 8.422 7.843 8.055 32.835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.7798.95 8.244 8.304 6.805 10.635 11.296 10.563 11.938 11.118 10.380 12.106 13.004 13.865 13.578 14.292 14.992 15.678 13.166 13.754 14.324 12.166 12.659 13.134 11.274 11.690 12.085 15.562 16.398 17.226 18.046 16.351 14.87713.590 12.462 11.470 10.594 22.023 25.808 25 19.523 22.396 19.600 17.292 11.258 10.274 31.424 25.730 18.256 Appendix D (concluded) Present value of an annuity of $1 Percent 10 0.741 2.361 2.322 2.283 2.2462.210 2.174 2.140 2.106 1.952 .816 1.696.589 1.407 2.974 2.914 2.855 3.517 3.433 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 2.951 2.643 2.385 2.168 1.824 2.362 2.689 2.166 2.436 2.798 2.743 2.690 2.639 2.589 1.849 3.274 2.991 2.220 6 4.039 4.344 4.607 4.288 2.508 2.263 2.598 2.331 2.665 2.379 4.078 4.207 4.451 3.837 3.329 2.925 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 3.571 3.092 2.715 2.414 1.965 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327 3.656 3.147 2.752 2.438 1.977 5.197 4.988 4.439 3.725 2.779 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533 3.780 3.223 2.7992.469 1.990 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 3.824 3.249 2.814 2.478 1.993 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 3.859 3.268 2.825 2.484 1.995 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730 3.887 3.283 2.834 2.489 1.997 6.729 6.373 6.047 5.749 5.475 5.222 4.988 4.775 3.910 3.295 2.840 2.492 1.998 6.840 6.4676.128 5.818 5.534 5.273 5.033 4.812 3.928 3.304 2.844 2.494 1.999 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 3.942 3.311 2.848 2.496 1.999 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870 3.954 3.316 2.850 2.497 1.999 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 3.985 3.329 2.856 2.499 2.000 7.496 7.003 6.566 6.1775.829 5.517 5.235 4.979 3.995 3.332 2.857 2.500 2.000 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997 3.999 3.333 2.857 2.500 2.000 7.675 7.133 6.661 6.246 5.880 5.554 5.262 4.999 4.000 3.333 2.857 2.500 2.000
