Sheridan, Inc. is considering purchasing equipment costing $40000 with a 6-year useful life. The equipment will provide annual cost savings of $9700 and will be depreciated straight-line over its useful life with no salvage value. Sheridan requires a 10% rate of return. Present Value of an Annuity of 1 Period 8% 9% 10% 11% 12% 15% 6 4.623 4.486 4.355 4.231 4.111 3.784 What is the approximate internal rate of return for this investment? ? 12% ? 10% ? 11% ? 9%
Added by James A.
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Annual cost savings = $9,700 Depreciation expense = $40,000 / 6 years = $6,666.67 Annual cash flow = Annual cost savings - Depreciation expense Annual cash flow = $9,700 - $6,666.67 = $3,033.33 Show more…
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