12. 6

lsen inc. purchased a $590,000 machine to manufacture a specialty tap for electrical quipment The tap is in high demand and Olsen can sell all that it could manufacture for the ext 10 years. To encourage capital investments, the government exempts taxes on profits from ew investments in this type of machinery. This legislation most likely will remain in effect in the preseeable future. The equipment is expected to have 10 years of useful life and no salvage alue at the end of this 10-year period. The firm uses straight-line depreciation. The net cash flow is expected to be $138,000 each year. Olsen uses a discount rate of 10% in evaluating its apital investments he estimated internal rate of return (IRR) on this proposed investment is: (Note: the PV annuity actor from Table 2, Appendix C, 10%, 10 years is 6145) Multiple Choice Less than 10%. 10%