Lynch Corporation bought a piece of machinery.Selected data is presented below:
$\begin{array}{l}
\begin{array}{l}
\text { Usefull life } &6 years\
\text { Yearly net cash inflow }&\$45,000 \
\text { Salvage value }&-0- \
\text { Internal rate of return }&18\% \
\text { Cost of capital }&15\%
\end{array}\
\end{array}$

Present value tables or a financial calculator are required.
The initial cost of the machinery was

Question

Lynch Corporation bought a piece of machinery.Selected data is presented below:
$\begin{array}{l}
\begin{array}{l}
\text { Usefull life } &6 years\
\text { Yearly net cash inflow }&\$45,000 \
\text { Salvage value }&-0- \
\text { Internal rate of return }&18\% \
\text { Cost of capital }&15\%
\end{array}\
\end{array}$

Present value tables or a financial calculator are required.
The initial cost of the machinery was

Quizplus · Accepted Answer

Using the internal rate of return (IRR) method, we can solve for the initial cost of the machinery. We set the net present value (NPV) of the cash inflows equal to zero and solve for the initial cost. Using a financial calculator or present value tables, we can find that the initial cost is approximately $208,493. At this cost, the NPV of the cash inflows is zero assuming an 18% IRR. Therefore, the best choice is B.

Lynch Corporation Bought a Piece of Machinery Present Value Tables or a Financial Calculator Are Required