The Comil Corporation recently purchased a new machine for its factory operations at a cost of...
The Comil Corporation recently purchased a new machine for its factory operations at a cost of $328,325. The investment is expected to generate $115,000 in annual cash flows for a period of four years. The required rate of return is 13%. The old machine has a remaining life of four years. The new machine is expected to have zero value at the end of the four-year period. The disposal value of the old machine at the time of replacement is zero. What is the internal rate of return?
A) 12%
B) 13%
C) 14%
D) 15%
Homework Answers
| Cost of machine | 328325 |
| Divide by Annual cash flows | 115000 |
| PV factor for Internal rate of return | 2.855 |
| The PV factor 2.855 for 4 years is closest to 15% | |
| (1-(1.15)^-4)/0.15 = 2.855 | |
| Internal rate of return = 15% | |
| Option D 15% is correct | |
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