Question

In: Accounting

A new machine that costs $80,800 is expected to save annual cash operating costs of $20,000...

A new machine that costs $80,800 is expected to save annual cash operating costs of $20,000 over each of the next seven years. The machine's internal rate of return is (see choices below the present value tables):

Present Value of $1

Periods

4%

6%

8%

10%

12%

14%

16%

1

.962

.943

.926

.909

.893

.877

.862

2

.925

.890

.857

.826

.797

.769

.743

3

.889

.840

.794

.751

.712

.675

.641

4

.855

.792

.735

.683

.636

.592

.552

5

.822

.747

.681

.621

.567

.519

.476

6

.790

.705

.630

.564

.507

.456

.410

7

.760

.665

.583

.513

.452

.400

.354

8

.731

.627

.540

.467

.404

.351

.305

9

.703

.592

.500

.424

.361

.308

.263

10

.676

.558

.463

.386

.322

.270

.227

Present Value of a Series of $1 Cash Flows

Periods

4%

6%

8%

10%

12%

14%

16%

1

0.962

0.943

0.926

0.909

0.893

0.877

0.862

2

1.886

1.833

1.783

1.736

1.690

1.647

1.605

3

2.775

2.673

2.577

2.487

2.402

2.322

2.246

4

3.630

3.465

3.312

3.170

3.037

2.914

2.798

5

4.452

4.212

3.993

3.791

3.605

3.433

3.274

6

5.242

4.917

4.623

4.355

4.111

3.889

3.685

7

6.002

5.582

5.206

4.868

4.564

4.288

4.039

8

6.733

6.210

5.747

5.335

4.968

4.639

4.344

9

7.435

6.802

6.247

5.759

5.328

4.946

4.607

10

8.111

7.360

6.710

6.145

5.650

5.216

4.833

Group of answer choices:

A. approximately 14%

B. some other value than the choices shown

C. approximately 16%

D. approximate 12%

Solutions

Expert Solution

IRR means rate at which NPV is zero.
Let us calculate NPV at 10% rate and 16% rate
10% 16%
a Annual Cash Inflow $         20,000 $         20,000
b PV annuity factor for 7 years 4.868 4.039
c PV of cash inflow (a*b) $         97,360 $         80,780
d Initial investment $         80,800 $         80,800
e NPV (c-d) $         16,560 $                -20
We can directly conclude that IRR is 16% (approx) because NPV at
16% rate is very close to 0.
therefore corrct option : C

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

A new molding machine is expected to produce operating cash flows of $109,000 a year for...
A new molding machine is expected to produce operating cash flows of $109,000 a year for 4 years. At the beginning of the project, inventory will decrease by $8,700, accounts receivables will increase by $9,500, and accounts payable will decrease by $5,200. All net working capital will be recovered at the end of the project. The initial cost of the molding machine is $319,000. The equipment will be depreciated straight-line to a zero book value over the life of the...
Machine X costs $248,751 and has annual operating and maintenance costs of $9,980. Machine Y costs...
Machine X costs $248,751 and has annual operating and maintenance costs of $9,980. Machine Y costs $264,500 and has annual operating and maintenance cost of $5,120. Both machines are Class 39, which specifies a CCA rate of 25%. The company needs the machines for 11 years, and at the end of year 11 machine X can be sold for $12,257 and machine Y can be sold for 13,033. The Company's MARR is 10%, and its marginal tax rate is 35%....
IBX Pty Ltd is considering the purchase of a new machine that is expected to save...
IBX Pty Ltd is considering the purchase of a new machine that is expected to save the company $89,000 at the end of each year in reduced wages. The machine costs $270,000, plus another $14,000 to be installed. It is expected to last for five years after which it can be sold as scrap for $42,000. Operating expenses (such as fuel and maintenance) are $8,000 pa. a)Determine the annual net cash flows of this investment (ignore the effect of taxes)....
IBX Pty Ltd is considering the purchase of a new machine that is expected to save...
IBX Pty Ltd is considering the purchase of a new machine that is expected to save the company $84,000 at the end of each year in reduced wages. The machine costs $288,000, plus another $16,000 to be installed. It is expected to last for five years after which it can be sold as scrap for $49,000. Operating expenses (such as fuel and maintenance) are $8,000 pa. a)Determine the annual net cash flows of this investment (ignore the effect of taxes)....
IBX Pty Ltd is considering the purchase of a new machine that is expected to save...
IBX Pty Ltd is considering the purchase of a new machine that is expected to save the company $81,000 at the end of each year in reduced wages. The machine costs $261,000, plus another $15,000 to be installed. It is expected to last for five years after which it can be sold as scrap for $47,000. Operating expenses (such as fuel and maintenance) are $7,000 pa. a)Determine the annual net cash flows of this investment (ignore the effect of taxes)....
IBX Pty Ltd is considering the purchase of a new machine that is expected to save...
IBX Pty Ltd is considering the purchase of a new machine that is expected to save the company $71,000 at the end of each year in reduced wages. The machine costs $234,000, plus another $15,000 to be installed. It is expected to last for five years after which it can be sold as scrap for $42,000. Operating expenses (such as fuel and maintenance) are $7,000 pa. a)Determine the annual net cash flows of this investment (ignore the effect of taxes)....
Jasper Metals is considering installing a new molding machine which is expected to produce operating cash...
Jasper Metals is considering installing a new molding machine which is expected to produce operating cash flows of $64,000 per year for 8 years. At the beginning of the project, inventory will decrease by $23,200, accounts receivables will increase by $24,600, and accounts payable will increase by $17,700. At the end of the project, net working capital will return to the level it was prior to undertaking the new project. The initial cost of the molding machine is $276,000. The...
Jasper Metals is considering installing a new molding machine which is expected to produce operating cash...
Jasper Metals is considering installing a new molding machine which is expected to produce operating cash flows of $74,000 per year for 9 years. At the beginning of the project, inventory will decrease by $35,200, accounts receivables will increase by $30,600, and accounts payable will increase by $22,200. At the end of the project, net working capital will return to the level it was prior to undertaking the new project. The initial cost of the molding machine is $321,000. The...
Jasper Metals is considering installing a new molding machine which is expected to produce operating cash...
Jasper Metals is considering installing a new molding machine which is expected to produce operating cash flows of $55,000 per year for 7 years. At the beginning of the project, inventory will decrease by $16,000, accounts receivables will increase by $21,000, and accounts payable will increase by $15,000. At the end of the project, net working capital will return to the level it was prior to undertaking the new project. The initial cost of the molding machine is $249,000. The...
a taxpaying​ entity, estimates that it can save $23,000 a year in cash operating costs for...
a taxpaying​ entity, estimates that it can save $23,000 a year in cash operating costs for the next 8 years if it buys a​ special-purpose eye-testing machine at a cost of $ 90000 No terminal disposal value is expected. Seattle Hospital's required rate of return is 12%. Assume all cash flows occur at​ year-end except for initial investment amounts. Seattle Hospital uses​ straight-line depreciation. The income tax rate is 28% for all transactions that affect income taxes. 1. Calculate the...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT