The management of Elamin Corporation is considering the purchase of a machine that would cost $365,695 and would have a useful life of 9 years. The machine would have no salvage value. The machine would reduce labor and other operating costs by $61,000 per year. The internal rate of return on the investment in the new machine is closest to (Ignore income taxes.): Use Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided.

Question

Quizplus · Accepted Answer

Factor of the internal rate of return = Investment required ÷ Annual net cash inflow
= $365,695 ÷ $61,000 = 5.995
This factor is the present value of an annuity for 9 periods at 9% per period.

The Management of Elamin Corporation Is Considering the Purchase of a Machine