Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $2.00 million and create incremental cash flows of $554,522.00 each year for the next five years. The cost of capital is 9.95%. What is the internal rate of return for the J-Mix 2000?
Let irr be x%
At irr,present value of inflows=present value of outflows.
2,000,000=554,522/1.0x+554,522/1.0x^2+554,522/1.0x^3+554,522/1.0x^4+554,522/1.0x^5
Hence x=irr=11.98%(Approx).
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