How to calculate internal rate of return method?
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calculating the internal rate of return ( IRR )
FOR EXAMPLE :-
The management of VGA Textile company is considered to replace an old machine with a new one . the new machine will be capable of performing some task much faster than the old . The installation of machine will cost $ 8,475 and will reduce the anual labor cost by $ 1,5 00 . The useful life of the machine will be 10 years with no salvage value . The minimum rate required of return is 15 % .
SOLUTION :-
To conclude whether the proposal should be accepted or not , the internal rate of return promised by machine would be found out first and then compared to company's minimum required rate of return .
The first step in finding out the internal rate of return is to compute a discount factor called internal rate of return factor .
FORMULA of internal rate of return factor :-
Internal rate of return factor =
Net initial investment
_________________
Annual cash inflow
HOPE IT WILL HELP YOU TO KNOW MORE !
____________________________________
Here's your answer
calculating the internal rate of return ( IRR )
FOR EXAMPLE :-
The management of VGA Textile company is considered to replace an old machine with a new one . the new machine will be capable of performing some task much faster than the old . The installation of machine will cost $ 8,475 and will reduce the anual labor cost by $ 1,5 00 . The useful life of the machine will be 10 years with no salvage value . The minimum rate required of return is 15 % .
SOLUTION :-
To conclude whether the proposal should be accepted or not , the internal rate of return promised by machine would be found out first and then compared to company's minimum required rate of return .
The first step in finding out the internal rate of return is to compute a discount factor called internal rate of return factor .
FORMULA of internal rate of return factor :-
Internal rate of return factor =
Net initial investment
_________________
Annual cash inflow
HOPE IT WILL HELP YOU TO KNOW MORE !
____________________________________
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