Ch$19$ Homework

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Internal Rate of Return

Manzer Enterprises is considering two independent investments:

A new automated materials handling system that costs $$900,000$ and will produce net cash inflows of $$300,000$ at the end of each year for the next four years.

A computer$-$aided manufacturing system that costs $$775,000$ and will produce labor savings of $$400,000$ and $$500,000$ at the end of the first year and second year, respectively.

Manzer has a cost of capital of $8$ percent.

The present value tables provided in Exhibit $19$B$.1$ and Exhibit $19$ B$.2$ must be used to solve the following problems.

Required:

Calculate the IRR for the first investment. Enter your answers as whole percentage values $($for example, $16\%$ should be entered as $"16"$ in the answer box$).$

Between $\%$ and $\%.$

Determine if it is acceptable or not.

$2.$ Calculate the IRR of the second investment. Use $12$ percent as the first guess. Enter your answers as whole percentage values $($for example, $16\%$ should be entered as $"16"$ in the answer box$).$ Between

$\%$ and

$\%.$

Comment on its acceptability.

$3.$ What if the cash flows for the first investment are $$250,000$ instead of $$300,000?$ Give your answer to the nearest whole percent.

The IRR would be about

$\%$