Genuine Products Inc. requires a new machine. Two companies have submitted bids, and you have been assigned to the task of choosing one of the machines. Cash flow analysis indicates the following: $$\begin{array} { | c | c | c | }
\hline \text { Year } & \text { Machine A } & \text { Machine B } \
\hline 0 & - \$ 2,000 & - \$ 2,000 \
\hline 1 & \$ 0 & \$ 832 \
\hline 2 & \$ 0 & \$ 832 \
\hline 3 & \$ 0 & \$ 832 \
\hline 4 & \$ 3,877 & \$ 832 \
\hline
\end{array}$$ What is the internal rate of return for each machine?

Question

Genuine Products Inc. requires a new machine. Two companies have submitted bids, and you have been assigned to the task of choosing one of the machines. Cash flow analysis indicates the following: $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \text { Machine A } & \text { Machine B } \
\hline 0 & - \$ 2,000 & - \$ 2,000 \
\hline 1 & \$ 0 & \$ 832 \
\hline 2 & \$ 0 & \$ 832 \
\hline 3 & \$ 0 & \$ 832 \
\hline 4 & \$ 3,877 & \$ 832 \
\hline
\end{array}$$ What is the internal rate of return for each machine?

Quizplus · Accepted Answer

The IRR for Machine A is 18% and for Machine B is 24%, calculated by finding the discount rate that makes the net present value of cash flows equal to zero for each machine.

Genuine Products Inc What Is the Internal Rate of Return for Each Machine