Mildura Manufacturing Company provides vending machines for soft-drink manufacturers.The company has been investigating a new piece of machinery for its production department.The old equipment has a remaining life of three years and the new equipment has a value of $73 250 with a three-year life.The expected additional cash inflows are $34 782 per year.What is the internal rate of return?

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. In this case, the cash inflows are $34,782 per year for 3 years, and the initial investment is $73,250. The IRR that equates the present value of these inflows to the initial investment is 20%.

Mildura Manufacturing Company Provides Vending Machines for Soft-Drink Manufacturers