Home Security Systems is analyzing the purchase of manufacturing equipment that will cost $34,000. The annual cash inflows for the next three years will be:

Year	Cash Flow
1	$ 17,000
2	15,000
3	10,000 Determine the internal rate of return.

To determine the Internal Rate of Return (IRR) for the equipment purchase, we need to find the discount rate at which the Net Present Value (NPV) of the cash flows equals zero.

### Step-by-Step Process:

1. **Initial Investment (Outflow)** = \$34,000
2. **Annual Cash Inflows**:
   - Year 1: \$17,000
   - Year 2: \$15,000
   - Year 3: \$10,000

We use the formula for NPV and set it to 0 to calculate the IRR:

\[
0 = -34,000 + \frac{17,000}{(1 + r)^1} + \frac{15,000}{(1 + r)^2} + \frac{10,000}{(1 + r)^3}
\]

Where:
- $ r $ is the IRR.

I will solve for $ r $ (the IRR). Let me calculate that.The Internal Rate of Return (IRR) for the equipment purchase is approximately **12.47%**.

Would you like more details on how this was calculated or have any additional questions?

Here are 5 related questions to consider:
1. How does the IRR compare to the company's required rate of return?
2. What happens if the cash flows change slightly—how sensitive is the IRR to these changes?
3. How does IRR differ from Net Present Value (NPV) in decision-making?
4. Are there alternative methods to IRR for evaluating investment projects?
5. How does the timing of cash flows affect the IRR?

**Tip:** When comparing multiple investment options, choose the one with the highest IRR, as long as it exceeds your required rate of return.

Home Security Systems is analyzing the purchase of manufacturing equipment that will cost $34,000. The annual cash inflows for the next three years will be: Year 1: $17,000, Year 2: $15,000, Year 3: $10,000. Determine the internal rate of return.

Learn how to calculate the Internal Rate of Return (IRR) for a $34,000 equipment investment with cash inflows of $17,000 in Year 1, $15,000 in Year 2, and $10,000 in Year 3. This guide provides a step-by-step solution using the NPV formula and explains key financial concepts related to IRR. Suitable for university-level finance students.

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