Define internal rate of return.
a. Find the accounting return on investment for a project that costs $10,000, will have no salvage value, and has expected annual aftertax profits each year of $1,000.
b. Determine the payback period for a capital investment that costs $40,000 and has the following after-tax profits. (The projected outlay of $40,000 will be depreciated on a straight-line basis over 7 years to a zero salvage value.)
|
Year
|
After-Tax Profits
|
|
1
|
$4,000
|
|
2
|
5,000
|
|
3
|
6,000
|
|
4
|
6,500
|
|
5
|
6,500
|
|
6
|
6,000
|
|
7
|
5,000
|