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

Question

Eisler 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 $431,200. 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 $104,879 for the next 6 years. Management requires a 10% rate of return on all new investments. (Refer the below table) -PV at annuity of 1.

a. Calculate the internal rate of return on this new machine. (Round answer to 0 decimal places, e.g. 10.) Internal rate of return %

b. Should the investment be accepted? The investment be accepted.

Explanation / Answer

a) Internal rate or return = $431,200/ $104,879 = 4.1140457

Looking at present value of annuity table for 6 years internal rate of return is 12%

( At 6 years for 12% = 4.11141)

b) investment should be accepted

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