You buy a new piece of equipment for 26621 and you receive a

You buy a new piece of equipment for $26,621, and you receive a cash inflow of $3,500 per year for 15 years. Use Appendix D for an approximate answer but calculate your final answer using the financial calculator method. What is 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

Solution

Let irr be x%
At irr,present value of inflows=present value of outflows.

26621=3500/1.0x+3500/1.0x^2+.................+3500/1.0x^15

26621=3500[1/1.0x+1/1.0x^2+...............+1/1.0x^15]

[1/1.0x+1/1.0x^2+...............+1/1.0x^15]=(26621/3500)

[1/1.0x+1/1.0x^2+...............+1/1.0x^15]=7.606

Hence x=irr=10%(Approx).