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Calculate the Internal Rate of Return of each of the following potential investments and recommend whether or not to include them in the upcoming capital
Calculate the Internal Rate of Return of each of the following potential investments and recommend whether or not to include them in the upcoming capital budget given that the firm's cost of capital is 14.5%.
- New Software:
- Initial Cost $25,000
- Training Cost $12,000
- Annual Cost Savings $10,500
- Useful Life 6 Years
- Machine A or Machine B
Note: The key word here is "or". One or the other machine must be bought. So, the analysis should be based on the incremental cash flows resulting from the more expensive alternative.
- Annual Production in units 40,000
- Cost of Machine A $38,000
- Cost of Machine B $32,000
- Unit Cost to Produce on Machine A $2.20
- Unit Cost to Produce on Machine B $2.22
- Useful Life 12 Years
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