Soda Manufacturing Company provides vending machines for soft-drink manufacturers. The company has been investigating a new piece of machinery for its production department. The old equipment has a remaining life of four years and the new equipment has a value of $91,110 with a four-year life. The expected additional cash inflows are $30,000 per year. What is the internal rate of return? A) 12% B) 16% C) 10% D) 8%

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19 September, 14:51

Soda Manufacturing Company provides vending machines for soft-drink manufacturers. The company has been investigating a new piece of machinery for its production department. The old equipment has a remaining life of four years and the new equipment has a value of $91,110 with a four-year life. The expected additional cash inflows are $30,000 per year. What is the internal rate of return? A) 12% B) 16% C) 10% D) 8%

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Answers (1)

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Bradshaw · Answer 1

A) 12%

Explanation:

You can solve this question using a financial calculator. I am using (Texas Instruments BA II plus)

Note: use the "CF" button

CF0 = - 91,110

From here onwards, press down arrow twice before keying in the next cashflow;

C01 = 30,000

C02 = 30,000

C03 = 30,000

C04 = 30,000

Press IRR, CPT = 12.005%

Therefore, IRR = 12%