Your answer is partially correct. Try again. Bruno Corporation is involved in th
ID: 2526155 • Letter: Y
Question
Your answer is partially correct. Try again. 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 $428,500. 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 $104,222 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
shouldshould not
be accepted.Explanation / Answer
Calculate the internal rate of return on this new machine
“ Internal rate of return is 12% “
Present Value Annuity Factor = Capital Investment / Net annual cash flow
= $4,28,500 / $1,04,222
= 4.1114
If we look into the factor 4.114 in present value annuity factor table for 6-years.
The discount rate is 12%.
Therefore, Internal rate of return is 12%
Should the investment be accepted ?
“ Yes. The project should be accepted “
The internal rate of return(12%) is greater than required rate of 10%. Therefore, the project should be accepted.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.