Conroy 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

Question

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The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of the cash flows from an investment equal to zero. By using trial and error or financial calculators, the IRR for the given cash flows (initial cost of $138,750 and annual contribution of $25,000 for 10 years) is approximately 12.4%.

Conroy Wants to Purchase a Machine for a New Product