Asked by Shelby Wilcox on Jul 11, 2024
Verified
(Ignore income taxes in this problem.)The management of Harling Corporation is considering the purchase of a machine that would cost $90,504 and would have a useful life of 5 years.The machine would have no salvage value.The machine would reduce labor and other operating costs by $27,000 per year.
Required:
Determine the internal rate of return on the investment in the new machine.Show your work!
Operating Costs
Expenses associated with the day-to-day operation of a business, excluding financing costs and taxes.
Useful Life
The estimated period over which an asset is expected to be usable for its intended purpose, affecting its depreciation.
Machine
Equipment or apparatus designed to perform a specific task in the manufacturing process.
- Compute the internal rate of return (IRR) for investments and comprehend its importance in making investment choices.
Verified Answer
AG
Apprecia GeanesJul 17, 2024
Final Answer :
Factor of the internal rate of return = Investment required ÷ Annual net cash inflow
= $90,504 ÷ $27,000 = 3.352
The factor of 3.352 for 5 years represents an internal rate of return of 15%.
= $90,504 ÷ $27,000 = 3.352
The factor of 3.352 for 5 years represents an internal rate of return of 15%.
Learning Objectives
- Compute the internal rate of return (IRR) for investments and comprehend its importance in making investment choices.