The Valentine Company has decided to buy a machine costing $14,750. Estimated cash savings from using the new machine amount to $4,500 per year. The machine will have no salvage value at the end of its useful life of five years. If Valentine's required rate of return is 10%, the machine's internal rate of return is closest to

Question

Pork Chop

Business

12 November, 02:52

The Valentine Company has decided to buy a machine costing $14,750. Estimated cash savings from using the new machine amount to $4,500 per year. The machine will have no salvage value at the end of its useful life of five years. If Valentine's required rate of return is 10%, the machine's internal rate of return is closest to

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William · Answer 1

16%.

Explanation:

The cost of machine is $14,750 and it can save up to $4,500 per year.

= $14,750 / $4,500 = 3.278

Suppose the company has a constant cash flow of $4500 for 5 years

16% is the write answer because at 16% net present value is zero.