Question

Rent-to-Own Equipment Co. is considering a new inventory system that will cost $450,000. The system is expected to generate positive cash flows over the next four years in the amounts of $250,000 in year one, $125,000 in year two, $110,000 in year three, and $80,000 in year four. Rent-to-Own's required rate of return is 10%. What is the internal rate of return of this project

Answer 1

Answer:

12.26%

Explanation:

Using financial calculator:

1. Press CF

  CFo = -450,000 (Enter)

  C01 = 250,000   F01 = 1

   C02 = 125000   F02 = 1

   C03 = 110000    F03 = 1

   C04 = 80000    F04 = 1

2. Press 2nd + Enter to quit

3. Press CPT + IRR

--> Internal rate of return of this project is 12.26%