Question

Exercise 24-5

Bruno Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for $441,700. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $104,407 for the next 6 years. Management requires a 10% rate of return on all new investments. Click here to view PV table.

Calculate the internal rate of return on this new machine. (Round answer to 0 decimal places, e.g. 10. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Internal rate of return

%

Should the investment be accepted?

The investment should or should not be accepted.

BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn’t equipped to do. Estimates regarding each machine are provided below.

		Machine A		Machine B
Original cost		$76,700		$183,000
Estimated life		8 years		8 years
Salvage value		0		0
Estimated annual cash inflows		$20,200		$40,500
Estimated annual cash outflows		$5,040		$9,870

Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

		Machine A		Machine B
Net present value
Profitability index

Pierre’s Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $262,000. A new salon will normally generate annual revenues of $64,160, with annual expenses (including depreciation) of $40,500. At the end of 15 years the salon will have a salvage value of $76,000.

Calculate the annual rate of return on the project. (Round answer to 0 decimal places, e.g. 125.)

Annual rate of return

%

Answer 1

B4 X for C Exercise 24-5 D B E F G H I as per HomeworkLib policy, I'm obliged to answer first complete question. Kindly ask remaining questions in a seperate question. Exercise 24-5 year o cash flow -$441,700 $ 104,407 $ 104,407 $ 104,407 $ 104,407 $ 104,407 $ 104,407 11% Internal rate of return The investment should be accepted reason-because the Internal rate of return of 11% is higher than the required rate of return. LOR the Internal rate of return can be calculated using the tables available with you. At Internal rate of return, the present value of cash outflows = present value of cash inflows present value of cash outflows = annual cash inflow * present value annuity factor (r%, 6 periods) $441,700 = $104,407 * present value annuity factor (r%, 6 periods) present value annuity factor (r%, 6 periods) = $441,700 / $104,407 present value annuity factor (r%, 6 periods) = 4.23056 look for 4.23056 in the present value of annuity of $1 table in the 6 period line. you'll find that the corresponding rate to 6th period is 11%

for formulas and calculations, refer to the image below -

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