Question

Question 3 /15 View Policies Current Attempt in Progress 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 $436,400. 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 $106, 144 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 O 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? be accepted The investment

Answer 1

Cumulative present value factor (PVIAF) = Initial investment / Annual cash inflow

= $436400/106144

= 4.11140

Find the value in PVIAF table in 6th year Row

Internal rate of return = 12%

The investment should be accepted.