Question
23. Paulsen is considering the acquisition of a $217,750 machine that is expected to produce annual savings in cash operating costs of $50,000 over the
23. Paulsen is considering the acquisition of a $217,750 machine that is expected to produce annual savings in cash operating costs of $50,000 over the next six years. If Paulsen uses the internal rate of return (IRR) to evaluate new investments and the company has a hurdle rate of 12%, which of the following statements is correct?
The machine's IRR is less than 4%, and the machine should not be acquired.
The machine's IRR is approximately 10%, and the machine should not be acquired.
The machine's IRR is approximately 10%, and the machine should be acquired.
The machine's IRR is approximately 12%, and the machine should be acquired.
All of the other statements are false.
24.A machine costs $28,000; it is expected to generate annual cash revenues of $12,000 and annual cash expenses of $4,000 for 4 years. The required rate of return is 14%. The net present value of this machine would be closest to (Round PV factors to 3 decimal places.):
$(6,968).
$34,968.
$0.
$(4,688).
$23,312.
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