Bruno Corporation is involved in the business of injection molding of plastics. It is considering...
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Accounting
Bruno Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for $430,000. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $101,000 for the next 6 years. Management requires a 10% rate of return on all new investments.
Instructions
Calculate the internal rate of return on this new machine. Should the investment be accepted?
Hint: When net annual cash flows are expected to be equal, the internal rate of return can be approximated by dividing the capital investment by the net annual cash flows to determine the discount factor, and then locating this discount factor (or one that comes close to it) on the present value of an annuity table.
(answer)
Capital Investment / Net annual cash flows
=
Discount factor
=
The discount factor closest to the answer above is ___________ which is located in
the _______% column for the 6 year row.
Since management requires a 10% rate of return, should your investment be:
accepted or rejected (indicate which one ) ____________________
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