Final answer:
The internal rate of return calculation for Bruno Corporation's potential machine purchase requires specific data and a PV table. Investments by Gizmo Company and Big Drug have additional social benefits that influence their respective demands for financial capital, which are not detailed in the question.
Step-by-step explanation:
The student's question involves calculating the internal rate of return (IRR) for a new machine that Bruno Corporation is considering purchasing for its plastic injection molding business. To answer this question, you would compare the IRR to the required rate of return set by the company's management. If the IRR is greater than or equal to the required rate of return— in this case, 10%—then the investment is considered acceptable. However, as the question does not provide sufficient detail or a PV table to calculate IRR specifically for Bruno Corporation, we can only provide a general approach to this problem. For detailed calculations, the cash inflow of $71,472 for the next 5 years and the initial outlay of $437,000 are crucial, but without the PV factors, we cannot compute the IRR.
Referring to Gizmo Company, every investment it makes has an additional 5% social benefit. This means an investment yielding a 6% return for the company implies an 11% societal return. If societal returns are considered, the demand for financial capital might increase as the perceived benefits are higher. Similarly, Big Drug, which faces a cost of borrowing at 8%, will have a different demand curve for financial capital considering the private benefits (Dprivate) versus the social benefits (Dsocial). If it could internalize the social benefits, the company would be willing to invest more, moving from a $30 million to a $52 million investment.