Smith Corporation
Smith Corporation is involved in the evaluation of a new computer-integrated manufacturing system.The system has a projected initial cost of $1,000,000.It has an expected life of six years,with no salvage value,and is expected to generate annual cost savings of $250,000.Based on Smith Corporation's analysis,the project has a net present value of $57,625.
Refer to Smith Corporation.What is the project's internal rate of return? Present value tables or a financial calculator are required.

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. Given that the project has a positive NPV at a certain discount rate, the IRR must be higher than this rate. Without specific calculations and just based on the information provided, the correct range for the IRR must be inferred from the context and the nature of IRR calculations. Since the NPV is positive, the IRR must be higher than the rate used in the NPV calculation, suggesting it falls within a higher range, which is option A, between 12.5 and 13.0 percent.

Smith Corporation Smith Corporation Is Involved in the Evaluation of a New