lgnore income taxes in this problem The following data perta

(lgnore income taxes in this problem.) The following data pertain to an Investment project Click here to view Exhibit 8B-1 and Exhibit 8B-2 to determine the appropriate discount factorís) using ta $26,080 s 5,000 Investment required Annual sovings Life of the project 10 years The internal rate of return is closest to: o 12% 13% ? 14% 3:25 P 7/15/20

Solution

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

26080=5000/1.0x+5000/1.0x^2+5000/1.0x^3+..............+5000/1.0x^10

26080=5000[1/1.0x+1/1.0x^2+...........+1/1.0x^10]

[1/1.0x+1/1.0x^2+...........+1/1.0x^10]=(26080/5000)

[1/1.0x+1/1.0x^2+...........+1/1.0x^10]=5.216

Hence x=irr=14%(APPROX).[also looking at present value of annuity factor(14%,10 years].