Leopold Ltd has invested in a machine with a cost of $37,164 and annual cost savings of $6,000. The discount rate is 8%, and the machine's internal rate of return is 12%. Ignore income taxes. The estimated life of the machine is:

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate at which the net present value (NPV) of an investment is zero. Given that the IRR is 12% and the cost savings are $6,000 annually, the estimated life of the machine can be calculated using the present value of an annuity formula. Solving for the number of periods (n) when the IRR equals 12% results in approximately 12 years.

Leopold Ltd Has Invested in a Machine with a Cost