Gotham Corporation is considering the acquisition of a new machine that costs $149,040. The machine is expected to have a four-year service life and will produce annual savings in cash operating costs of $45,000. Gotham evaluates investments by using the internal rate of return and ignores income taxes.
Required:
A. Briefly define the internal rate of return.
B. What relationship holds true at the internal rate of return with respect to discounted cash inflows and discounted cash outflows? With respect to net present value?
C. Compute the machine's internal rate of return.

Question

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The Answer of Gotham Corporation is considering the acquisition of a new machine that costs $149,040. The machine is expected to have a four-year service life and will produce annual savings in cash operating costs of $45,000. Gotham evaluates investments by using the internal rate of return and ignores income taxes.
Required:
A. Briefly define the internal rate of return.
B. What relationship holds true at the internal rate of return with respect to discounted cash inflows and discounted cash outflows? With respect to net present value?
C. Compute the machine's internal rate of return.

Gotham Corporation Is Considering the Acquisition of a New Machine