The Schroeder Corporation is considering the purchase of an system that costs $55,000, with a 5...
The Schroeder Corporation is considering the purchase of an system that costs $55,000, with a 5 year life and no salvage value. The system will generate cost savings over its life of $15,000 per year.
The company has a required rate of return of 20% on all its inverstments.
1. Compute the Internal Rate of Return of this investment.
2. Should the company make the investment and why or why not?
Homework Answers
| Year | Cash Flow |
| 0 | -55000 |
| 1 | 15000 |
| 2 | 15000 |
| 3 | 15000 |
| 4 | 15000 |
| 5 | 15000 |
| IRR | 11.32% |
IRR is calculated using IRR Function in excel/Financial calculator
2. Should the company make the investment and why or why not?
No, company should not invest because IRR is less than required rate of return of 20%
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