Exercise 24-5 Bruno Corporation is involved in the business of injection molding

Question

Exercise 24-5 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 $451,100. The company believes that with this new machine it wil improve productivity and increase qualty resu ng nan? ncrease in ne annua cash flows of $103,576 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

Explanation / Answer

Net Annual Cash Flows 103576 Cash Outflow Y0 451000 No of Years 6.00 Year Cash Flows Discount Factor @12% Present Value @ 12% Discount Factor @10% Present Value @ 10% 0 -451000 1.00 -4,51,000 1.00 -4,51,000 1 103576 0.89 92,479 0.91 94,160 2 103576 0.80 82,570 0.83 85,600 3 103576 0.71 73,723 0.75 77,818 4 103576 0.64 65,824 0.68 70,744 5 103576 0.57 58,772 0.62 64,313 6 103576 0.51 52,475 0.56 58,466 -25,157 100 IRR= 10%+ 100/ (12%-10%) (100+25157) IRR= 10%+ 0.00 (12%-10%) IRR= 10%+ 0.00 2% IRR= 10%+ 0.01% IRR= 10.01% Company Should accept the Proposal, Since IRR is 10.01% and Company Minimum 10%

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