1. (Ignore income taxes in this problem.) Allen Company's required rate of return is 14%. The company is considering the purchase of a new machine that will save $10,000 per year in cash operating costs. The machine will cost $40,000 and will have an 8-year useful life with zero salvage value. Straight-line depreciation will be used.
2. What is the machine's internal rate of return to the nearest whole percent?
3. Would you recommend purchase of the machine? Explain.