Answer:
Initial cost of the equipment = $339,600
Explanation:
Given:
Yearly net cash inflow = $60,000
Salvage value = $0
Internal rate of return = 14% = 0.14
Required rate of return = 10%
Find:
Initial cost of the equipment = ?
Computation:
Annuity factor of internal rate of return
[tex]\frac{1-(1+r)^{-n}}{r} \\\\\frac{1-(1+0.14)^{-12}}{0.14} \\\\\frac{1-(1.14)^{-12}}{0.14} \\\\5.66[/tex]
Initial cost of the equipment = Yearly net cash inflow × Annuity factor of internal rate of return
Initial cost of the equipment = $60,000 × 5.66
Initial cost of the equipment = $339,600
