Question

Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $60,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Annual labor costs would increase $5,500 using the gang punch, but annual raw material costs would decrease $10,000. MARR is 5.25 %/year.

Required:
What is the IRR of this investment?

Answer 1

1.51%

Step-by-step explanation:

Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested

IRR can be calculated with a financial calculator

Cash flow in year 0 = $-60,000

Cash flow each year from year 1 to 15 = $10,000 - $5500 = $4,500

IRR = 1.51%

To find the IRR using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.