Corin Corporation is considering the purchase of a machine that would cost $420,

Question

Corin Corporation is considering the purchase of a machine that would cost $420,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $97,000. The machine would reduce labor and other costs by $76,000 per year. The company requires a minimum pretax return of 16% on all investment projects. (Ignore income taxes.)

Required:

Compute the internal rate of return of the project by inputting the variables that are entered into your calculator / Excel. (If a variable is not used in the calculation, input a zero (0). Omit the "$" and "%" signs in your response.) Round your answer to one decimal place and use a minus sign for negative numbers.


1.Interest Rate
(Rate, I, I/YR)%

2.Nper, N

3.PMT$

4.PV$

5.FV$

6.Internal Rate of Return (IRR)%

Explanation / Answer

Interest rate =16% Initial cost= -$420,000 N=8 years PMT for year 1-7 = $76,000 PMT for year 8 =$97,000+$76,000 =$173000 PV = $76,000/1.16 + $76,000/1.16^2 ...$173000/1.16^8 =$359,700.38 NPV =$359,700.38 -$420,000 =-$60299.62 FoIRR, NPV =0 -$420,000 + $76,000/(1+r) + $76,000/(1+r)^2 ...$173000/(1+r)^8 IRR=11.80%

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