Can someone help me with this? Ace Corporation recently purchased a new machine

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Can someone help me with this?

Ace Corporation recently purchased a new machine for its factory operations at a cost of $950,000. The investment is expected to generate $250,000 in annual cash flows for a period of five years. The required rate of return is 8%. The new machine is expected to have zero salvage value at the end of the five-year period TABLE 4 Present Value of an Annuity of 1 Payments 4% 5% 6% 7% 8% 10% 11% 12% 15% 95238 94340 0.93458 92593 .91743 90909 90090 89286 86957 1.88609 .8594 1.83339 1.80802 1.78326 .75911 1.73554 1.71252 1.69005 1.62571 2.77509 2.72325 2.6730 2.62432 2.57710 2.53130 2.48685 2.44371 2.40183 2.28323 3.62990 3.54595 3.4651 3.38721 3.31213 3239723.16986 3.10245 3.03735 2.85498 4.45182 4.32948 4.21236 4.10020 3.9927 3.88965 3.79079 3.69590 3.60478 3.35216 5.24214 5.07569 4.91732 4.76654 4.62288 4.48592 4.35526 4.23054 4.11141 3.78448 6.00205 5.78637 5.58238 5.38929 5.20637 5.03295 4.86842 4.71220 4.56376 4.16042 6.73274 6.4632 6.20979 5.97130 5.74664 5.53482 5.33493 5.14612 4.96764 4.48732 7.43533 7.10782 6.80169 6.51523 6.24689 5.99525 5.75902 5.53705 5.32825 4.77158 8.11090 7.72173 7.36009 7.02358 6.71008 6.41766 6.14457 5.88923 5.65022 5.01877 8.76048 8.30641 7.88687 7.49867 7.13896 6.80519 6.49506 6.20652 5.93770 5.23371 9.38507 8.86325 8.38384 7.94269 7.53608 7.16073 6.81369 6.49236 6.19437 5.42062 9.98565 9.39357 8.85268 8.35765 7.903787.48690 7.10336 6.749876.42355 5.58315 10.56312 9.89864 9.29498 8.74547 8.244247.78615 7.36669 6.981876.62817 5.72448 .11839 10.37966 9.71225 9.10791 8.55948 8.06069 7.60608 7.19087 6.81086 5.84737 11.65230 10.83777 10.10590 9.44665 8.85137 8.31256 7.82371 7.37916 6.97399 5.95424 12.16567 11.27407 10.47726 9.76322 9.12164 8.54363 8.02155 7.54879 7.11963 6.04716 12.65930 11.68959 10.82760 10.05909 9.37189 8.75563 8.20141 7.70162 7.24967 6.12797 13.13394 12.08532 11.15812 10.33560 9.60360 8.95012 8.36492 7.83929 7.36578 6.19823 13.59033 12.46221 1.46992 10.59401 9.81815 9.12855 8.51356 7.96333 7.46944 6.25933 96154 4 7 10 12 13 15 16 17 18 19 20 Calculate the internal rate of return Internal rate of return

Explanation / Answer

Ace Corporation

Calculation of Internal Rate of Return –

Cost of machine = $950,000

Annual cash inflow = $250,000

Useful life = 5 years

At internal rate of return the present value of cash outflows = present value of cash inflows

Present value of cash outflows = $950,000

Present value of cash inflows = $250,000 (P/A, r, 5)

= 950,000/250,000 = (P/A, r, 5)

(P/A, r, 5) = 3.80

Checking the factor value of 3.80 in the 5 – period row, the corresponding discount rate = 10% with 3.79079

The internal rate of return is 10%

To verify,

Present value of cash inflows for 5 years at 10% rate = $250,000 x (3.79079) = $947,700, very nearer to $950,000. Hence, the internal rate of return = 10%

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