| CALCULATOR FULL SCREEN PRINTER VERSION BACK Exercise 12-5 Bruno Corporation is

Question

| CALCULATOR FULL SCREEN PRINTER VERSION BACK 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 $447,400. 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 $118,220 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.) Internal rate of return Should the investment be accepted? The investment be accepted. LINK TO TEXT VIDEO: SIMILAR EXERCISE Question Attempts: 0 of 3 used SAVE FOR LATER SUBMIT ANSWER Version 4.24.3.3

Explanation / Answer

Let irr be x%
At irr,present value of inflows=present value of outflows.

447400=118220/1.0x+118220/1.0x^2+..........+118220/1.0x^6

(447400/118220)=1/1.0x+1/1.0x^2+..........+1/1.0x^6

1/1.0x+1/1.0x^2+..........+1/1.0x^6=3.78447

Hence x=IRR=15%(Looking at present value of annuity factor(15%,6 years)].

Hence since IRR is greater than the required return;the project should be accepted.

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