Question

Reece Corporation is considering the purchase of a machine that would cost $24,388 and would have a useful life of 6 years. The machine would generate $5600 of net annual cash inflows per year for each of the 6 years of its life. The internal rate of return on the machine would be closest to:

Answer 1

10%

Step-by-step explanation:

IRR is the rate at which the net present value of a project is equal to zero. Using a financial calculator, use the following inputs and the CF function to find IRR;

The cost of the machine is the initial investment ; CF0 = -$24,388

Net cashflow year 1; C01 = 5,600

Net cashflow year 2; C02 = 5,600

Net cashflow year 3; C03 = 5,600

Net cashflow year 4; C04 = 5,600

Net cashflow year 5; C05 = 5,600

Net cashflow year 6; C06 = 5,600

then key in CPT IRR = 10.00%

Therefore, the internal rate of return is closest to 10%