The Tool Box needs to purchase a new machine costing $1.46 million.Management is estimating the machine will generate cash inflows of $223,000 the first year and $600,000 for the following three years.If management requires a minimum 12 percent rate of return,should the firm purchase this particular machine based on its IRR? Why or why not?
A)Yes, because the IRR is 10.75 percent
B)Yes, because the IRR is 12.74 percent
C)No, because the IRR is 10.75 percent
D)No, because the IRR is 12.74 percent
E)The answer cannot be determined as there are multiple IRRs

Question

Quizplus · Accepted Answer

The IRR (Internal Rate of Return) is 12.74 percent, which is higher than the required rate of return of 12 percent. Therefore, the firm should purchase the machine.

The Tool Box Needs to Purchase a New Machine Costing