(Ignore income taxes in this problem) The management of Boie Corporation is considering the purchase of a machine that would cost $330,980 and would have a useful life of 6 years. The machine would have no salvage value. The machine would reduce labor and other operating costs by $76,000 per year. The internal rate of return on the investment in the new machine is closest to:

Question

Quizplus · Accepted Answer

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. To find the IRR, we need to equate the present value of the annual savings to the initial investment. Using the formula for the present value of an annuity, we solve for the rate that makes the present value of $76,000 per year for 6 years equal to $330,980. The IRR is closest to 10%.

(Ignore Income Taxes in This Problem) the Management of Boie