Brief Exercise 12-7 Horowitz Company is evaluating the purchase of a rebuilt spo

Question

Brief Exercise 12-7 Horowitz Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the manufacture of a new product. The machine will cost $177,000, has an estimated useful life of 7 years, a salvage value of zero, and will increase net annual cash flows by $33,997. (Refer the below table) TABLE 4 Present Value of an Annuity of 1 Payments 7% 9% 94340 0.93458.92593 .91743 .90909 90090 .89286 86957 1.88609 1.85941 1.83339 1.80802 1.78326 .759 1.73554 1.71252 1.69005 1.62571 2.77509 2.72325 2.6730 2.62432 2.57710 2.53130 2.48685 2.44371 2.40183 2.28323 3.62990 3.54595 3.4651 3.38721 3.31213 3.23972 3.16986 3.10245 3.03735 2.85498 4.45182 4.32948 4.21236 4.10020 3.99271 3.88965 3.79079 3.69590 3.60478 3.35216 5.24214 5.07569 4.91732 4.76654 4.62288 4.48592 4.35526 4.23054 4.11141 3.78448 6.00205 5.78637 5.58238 5.38929 5.20637 5.03295 4.86842 4.71220 4.56376 4.16042 6.73274 6.46321 6.20979 5.97130 5.74664 5.53482 5.33493 5.14612 4.96764 4.48732 7.43533 7.10782 6.80169 6.51523 6.24689 5.99525 5.75902 5.53705 5.32825 4.77158 8.11090 7.72173 7.360097.02358 6.71008 6.41766 6.14457 5.88923 5.65022 5.01877 8.76048 8.30641 7.88687 7.49867 7.13896 6.80519 6.49506 6.20652 5.93770 5.23371 9.38507 8.86325 8.38384 7.94269 7.53608 7.16073 6.81369 6.49236 6.19437 5.42062 9.98565 9.39357 8.85268 8.35765 7.90378 7.48690 7.10336 6.74987 6.42355 5.58315 10.56312 9.89864 9.29498 8.74547 8.24424 7.78615 7.36669 6.98187 6.62817 5.72448 11.11839 10.37966 9.71225 9.10791 8.55948 8.06069 7.60608 7.19087 6.81086 5.84737 11.65230 10.83777 10.10590 9.44665 8.85137 8.31256 7.82371 7.37916 6.97399 5.95424 12.16567 11.27407 10.47726 9.76322 912164 8.54363 8.02155 7.54879 7.11963 6.04716 12.65930 11.68959 10.82760 10.05909 9.37189 8.75563 8.20141 7.701627.24967 6.12797 12 13 1

Explanation / Answer

IRR can be calculated by using the following excel function: =

(-177000,33997,33997,33997,33997,33997,33997,33997) = 8%

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