Question
A manufacturer is considering a purchase of a new manufacturing machine. The machine is expected to save $4,000 per year and it costs $10,000 to
A manufacturer is considering a purchase of a new manufacturing machine. The machine is expected to save $4,000 per year and it costs $10,000 to purchase. The expected useful life of the machine is 3 years and there is no expected residual value at the end of the 3 years. The minimum acceptable rate of return is 12%. Use the following chart to organize your calculations.
A) Which rate of return is closest to the Internal Rate of Return of the investment: 10% or 14%?
B)What is the present value of the year 1 cash flows at 10%?
C)What is the present value of the year 2 cash flows at 10%?
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