The internal rate of return method is used by Premier Construction Co. in analyzing a capital expenditure proposal that involves an investment of $41,575 and annual net cash flows of $12,500 for each of the six years of its useful life.
a. Determine a present value factor for an annuity of $1 which can be used in determining the internal rate of return.
b. Using the factor determined in part (a) and the present value of an annuity of $1 table appearing in this chapter, determine the internal rate of return for the proposal.
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