Christoph wants to purchase a machine for a new product line that costs $138,750. The company's engineering department estimates the machine will last 10 years and provide an annual contribution margin of $25,000. Ignore income taxes. The internal rate of return to the nearest tenth of a percent is:
A) 12.64%
B) 12.4%
C) 11.6%
D) 13.46%

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. In this case, the initial investment is $138,750, and the annual return is $25,000 for 10 years. Using the IRR formula or a financial calculator to solve for the IRR with these inputs gives an IRR of approximately 12.4%.

Christoph Wants to Purchase a Machine for a New Product