INTERNAL RATE PF RETURN METHOD $($IRR$)$ OF CAPITAL BUDGETING

Kingston Corp. is considering a new machine that requires an initial investment of $$480,000$ installed and has a useful life of $8$ years. The expected annual after$-$tax cash flows for the machine are $$89,000$ for each of the $8$ years and nothing thereafter.

a$.$ Calculate the net present value of the machine if the required rate of return is $11$ percent.

b$.$ Calculate the IRR of this project.

c$.$ Should Kingston accept the project $($assume that it is independent and not subject to any capital rationing constraint$)?$ Explain your answer.

IRR $=$ Lower Rate $+\frac{\text{P}\text{o}\text{s}\text{i}\text{t}\text{i}\text{v}\text{e}NPV}{\text{P}\text{o}\text{s}\text{i}\text{t}\text{i}\text{v}\text{e}NPV-\text{N}\text{e}\text{g}\text{a}\text{t}\text{i}\text{v}\text{e}NPV}**$ Difference $in$ rate