(Ignore income taxes in this problem.) Henscheid Roofing is considering the purchase of a crane that would cost $104,972, would have a useful life of 7 years, and would have no salvage value. The use of the crane would result in labor savings of $23,000 per year. The internal rate of return on the investment in the crane is closest to:

IRR is 12%

Explanation:

The internal rate of return on the investment can be computed using the IRR formula in excel:

=IRR(values)

The values are the cash flows for the relevant years arranged as shown below:

Years   Cash flows

0             -$104,972

1                $23,000

2               $23,000

3               $23,000

4               $23,000

5               $23,000

6                $23,000

7                $23,000

=irr(values from -$104,972-$23,000 in year 7)

irr=12%

Kindly find attached excel with the computation of IRR as well

The internal rate of return is the rate of return on investment where present value of cash inflows equal the initial investment

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