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Bruno Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine
Bruno Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for $430,000. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $101,000 for the next 6 years. Management requires a 10% rate of return on all new investments. Instructions Calculate the internal rate of return on this new machine. Should the investment be accepted? Hint: When net annual cash flows are expected to be equal, the internal rate of return can be approximated by dividing the capital investment by the net annual cash flows to determine the discount factor, and then locating this discount factor (or one that comes close to it) on the present value of an annuity table. Capital Investment / Net annual cash flows 430000/101000 (answer) Discount factor = 4.2574 The discount factor closest to the "answer" above is which is located in the % column for the "6 year" row. Since "management" requires a 10% rate of return, should your investment be: accepted or rejected indicate which one )
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