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Using a financial calculator or spreadsheet, determine the internal rate of return for the investment. This example involves the decision to purchase a new machine
Using a financial calculator or spreadsheet, determine the internal rate of return for the investment. This example involves the decision to purchase a new machine to replace an old one. Jones. Co needs to purchase a new machine and has a choice of two machines that will provide the same function Machine A cost $100.000 and would provide savings of $25,000 for the next five years. Machine B cost $75,000 and would provide savings of $20,000 for the next 5 years. Machine A 0 Time 2 $25,000 4 1 $25,000 5 3 $25,000 Cash flows $100,000 $25,000 $25,000 Machine B 4 Time 2 $20,000 0 -$75,000 5 1 $20,000 3 $20,000 Cash flows $20,000 $20,000 Machine A costs more than machine B but also provides higher savings than machine B in the future. Both machines have total savings of $25,000 over the cost of the machine IRR analysis can be used to find out which machine will provide the highest return on investment Machine A IRR Machine B IRR 7.9308% 10.4248%
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