Bruno Corporation is involved in the business of injection molding of plastics.

Question

Bruno Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for $434,400. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $102,682 for the next 6 years. Management requires a 10% rate of return on all new investments. Click here to view PV table.

Calculate the internal rate of return on this new machine. (Round answer to 0 decimal places, e.g. 10. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Should the investment be accepted?

Internal rate of return

%

Explanation / Answer

Interna rate of return is a rate at which NPV of project is comes out to zero. So we have to use hit & trial method for finding it

NPV at 11%

So internal rate is 11% as it NPV Comes out to be zero

B) Since Internal rate of return is 11% and project is offering 10% on return which is lower then it so project should not be accepted.

Net present Value Particulars Cash Inflow Pv @ 11% PV Year 1 to 6 102682 4.231 434400.0 Total Present Value of Inflow 434400.0 Cost of Machine 434400.0 NPV 0.0

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