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King’s Department Store is contemplating the purchase of a new machine at a cost

ID: 2740949 • Letter: K

Question

King’s Department Store is contemplating the purchase of a new machine at a cost of $26,325. The machine will provide $3,900 per year in cash flow for thirteen years. King’s has a cost of capital of 10 percent. Use Appendix D for an approximate answer but calculate your final answer using the financial calculator method.


What is the internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)



King’s Department Store is contemplating the purchase of a new machine at a cost of $26,325. The machine will provide $3,900 per year in cash flow for thirteen years. King’s has a cost of capital of 10 percent. Use Appendix D for an approximate answer but calculate your final answer using the financial calculator method.

Explanation / Answer

Answer : Internal rate of return is 10.997%

As per excel

As per finacial calculator 10.997%

Answer b. Yes, King's deparment should undertaken this project. Because its IRR 10.997% is more than the required return 10%.

Year Cash flow 0 -26325 1 3900 2 3900 3 3900 4 3900 5 3900 6 3900 7 3900 8 3900 9 3900 10 3900 11 3900 12 3900 13 3900 IRR 11%