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 $111,640 and annual net cash flows of $20,000 for each of the seven 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. ______________

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.____________ %