Exercise 12-5 Bruno Corporation is involved in the business of injection molding

Question

Exercise 12-5 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 $430,700. 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 $104,757 for the next 6 years. Management requires a 10% rate of return on all new investments. Click here to view PV table. bine it wilinprmventaio ik toew PV table Calculate the internal rate of return on this new machine. (Round answer to O decimal places, e.g. 10. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Internal rate of return Should the investment be accepted? The investment be accepted.

Explanation / Answer

-430700 Ans. A Internal Rate of Return = Investment / Annual Cash in Flow 104757 430700 / 104757 104757 4.11142 OR 12% 104757 104757 104757 Ans.b The investment should be accepted. 104757 12% *The 12% internal rate of return is calculated on excel. Formula :   =IRR(RANGE)

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