Question

Crockin Corporation is considering a machine that will save $25,000 a year in cash operating costs each year for the next six years. At the end of six years it would have no salvage value. If this machine costs $126,900 now, the machine's internal rate of return is closest to:______.

a. 3%
b. 4%
c. 5%
d. 6%

Answer 1

c. 5%

Step-by-step explanation:

The computation of machine's internal rate of return is shown below:-

Year Cash flow

0 -$126,900

1 $25,000

2 $25,000

3 $25,000

4 $25,000

5 $25,000

6 $25,000

Rate of

return 5%

For more clarification please look into spreadsheet which is attached.