# Swagelok Enterprises is a manufacturer of miniature fittings and valves. Over a 5-year period,...

## Question:

Swagelok Enterprises is a manufacturer of miniature fittings and valves. Over a 5-year period, the costs associated with one product line were as follows: first cost of $22,000, and annual costs of$19,000. Annual revenue was $26,000 and the used equipment was salvaged for$6,000. What rate of return did the company make on this product?

## Internal rate of return

Internal rate of return is used to evaluate long term projects involving considerable investment. Though it is a good measure it has some drawbacks too like it doesn't consider reinvestment opportunities and risks. And it doesn't work for irregular patterns of cash flows.

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The internal rate of return of a project is given by

PV of inflows = intial outlay

Where

Annual Inflows =$26000 -$19000 =\$7000 p.a.

Its PV =...