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 $432,300. 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 $114,230 for the next 6 years. Management requires a 10% rate of return on all new investments. Click here to view PV table. ew machine it wilinstmvents, Cick here to view Pl taible. cRound answer to o decimal places. cl Calculate the al 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

Let x =PV factor for 6 year

At IRR NPV =0

0=-4323000+114230*X

X=3.78447

PV factor for 6 year =3.78447

In The PV table 3.78447 ls at Year 6 15%

So IRR =15%

Since the IRR is above Cost of capital Project should be accepted

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