14.09 percent 12.47 percent 14.19 percent 12.21 percent 13.72 percent The Tool B

Question

14.09 percent

12.47 percent

14.19 percent

12.21 percent

13.72 percent

The Tool Box needs to purchase a new machine costing $1.46 million. Management is estimating the machine will generate cash inflows of $223,000 the first year and $600,000 for the following three years. If management requires a minimum 12 percent rate of return, should the firm purchase this particular machine? Why or why not?

Yes, because the IRR is 12.74 percent

No, because the IRR is 12.74 percent

The answer cannot be determined as there are multiple IRRs

Yes, because the IRR is 10.75 percent

No, because the IRR is 10.75 percent

15.96 percent; A

12.79 percent; B

13.28 percent; A

13.28 percent; B

15.96 percent; B

Explanation / Answer

Usinf Excel IRR function as follows we can find IRR

=IRR(4 cells containing cash flows)

=IRR(B324:E324)

IRR=14.09%

The Tool Box needs to purchase a new machine costing $1.46 million. Management is estimating the machine will generate cash inflows of $223,000 the first year and $600,000 for the following three years. If management requires a minimum 12 percent rate of return, should the firm purchase this particular machine? Why or why not?

Yes, because the IRR is 12.74 percent

ou are considering the following two mutually exclusive projects. The crossover point is __13.28%___ and Project ___B__ should be accepted if the discount rate is 14 percent.

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