Exercise 16-9 Determining the internal rate of return LO 16-3

Merton Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the companys cash outflow for operating expenses by $1,289,000 per year. The cost of the equipment is $6,481,922.12. Merton expects it to have a 11-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 15 percent and uses the straight-line method for depreciation. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required

a.

Calculate the internal rate of return of the investment opportunity.

	Internal rate of return

b.

Indicate whether the investment opportunity should be accepted.

	Accepted
	Rejected