Scheer Corporation is involved in the business of injection molding of plastics.

Question

Scheer 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 $439,300. 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 $97,929 for the next 6 years. Management requires a 14% rate of return on all new investments. Calculate the internal rate of return on this new machine. (Use the tables to determine the percentage. Round answer 0 decimal places, e.g. 10.) Internal rate of return % Should the investment be accepted? Click here if you would like to Show Work for this question

Explanation / Answer

Kendra 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 $425,000. 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 $95,000 for the next 6 years. Management requires a 10% rate of return on all new investments. 6 Year Statement of Cash Flows Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Net Cashflow -$425K $95K $95K $95K $95K $95K $95K IRR = 9% Management should not purchase the machine.

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