) The Comil Corporation recently purchased a new machine for its factory operati

Question

) The Comil Corporation recently purchased a new machine for its factory operations at a cost of $390,875. The investment is expected to generate $125,000 in annual cash flows for a period of five years. The required rate of return is 12%. The old machine has a remaining life of five years. The new machine is expected to have zero value at the end of the five-year period. The disposal value of the old machine at the time of replacement is zero. What is the internal rate of return? A) 15% B) 16% C) 17% D) 18%

Explanation / Answer

3.127

Since NPV is 0 at 18% so internal rate is 18%

Correct answer is D) 18%

Working

Pv of Cash inflow = respective total X 125,000

Year / Rate 0.15 0.16 0.17 0.18 1 0.870 0.862 0.855 0.847 2 0.756 0.743 0.731 0.718 3 0.658 0.641 0.624 0.609 4 0.572 0.552 0.534 0.516 5 0.497 0.476 0.456 0.437 Total 3.352 3.274 3.199

3.127

Pv of Cash Inflow 419019 409287 399918 390875 Initial Investment 390875 390875 390875 390875 NPV 28144 18412 9043 0

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