6. The Imperial Chemical Company is considering purchasing a chemical analysis machine worth $13,000. Although the purchase of this machine will not produce any increase in sales revenues, it will result in a reduction of labour costs. In order to operate the machine properly, it must be calibrated each year. The machine has an expected life of 6 years, after which it will have no salvage value. The following table summarizes the annual savings in labour cost and the annual maintenance costs in calibration over 6 years: Net Cash Flow ($) Costs ($) Year (n) 0 Savings ($) 13,000 -13,000 1 2,300 6,000 3,700 2 2,300 7,000 4,700 3 2,300 9,000 6,700 4 2,300 9,000 6,700 5 2,300 9,000 6,700 6 2,300 9,000 6,700 Find the internal rate of return for this project. [6]
6. The Imperial Chemical Company is considering purchasing a chemical analysis machine worth $13,000. Although the purchase of this machine will not produce any increase in sales revenues, it will result in a reduction of labour costs. In order to operate the machine properly, it must be calibrated each year. The machine has an expected life of 6 years, after which it will have no salvage value. The following table summarizes the annual savings in labour cost and the annual maintenance costs in calibration over 6 years: Net Cash Flow ($) Costs ($) Year (n) 0 Savings ($) 13,000 -13,000 1 2,300 6,000 3,700 2 2,300 7,000 4,700 3 2,300 9,000 6,700 4 2,300 9,000 6,700 5 2,300 9,000 6,700 6 2,300 9,000 6,700 Find the internal rate of return for this project. [6]
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
Related questions
Question
![6. The Imperial Chemical Company is considering purchasing a chemical analysis machine worth $13,000.
Although the purchase of this machine will not produce any increase in sales revenues, it will result in a
reduction of labour costs. In order to operate the machine properly, it must be calibrated each year. The
machine has an expected life of 6 years, after which it will have no salvage value. The following table
summarizes the annual savings in labour cost and the annual maintenance costs in calibration over 6 years:
Net Cash Flow ($)
Costs ($)
Year (n)
0
Savings ($)
13,000
-13,000
1
2,300
6,000
3,700
2
2,300
7,000
4,700
3
2,300
9,000
6,700
4
2,300
9,000
6,700
5
2,300
9,000
6,700
6
2,300
9,000
6,700
Find the internal rate of return for this project.
[6]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdabcf62a-4264-45a5-8b3d-681bcae0b009%2F7d3d2e07-72b5-43c4-90c4-53efe1020637%2Fyrg4jw_processed.png&w=3840&q=75)
Transcribed Image Text:6. The Imperial Chemical Company is considering purchasing a chemical analysis machine worth $13,000.
Although the purchase of this machine will not produce any increase in sales revenues, it will result in a
reduction of labour costs. In order to operate the machine properly, it must be calibrated each year. The
machine has an expected life of 6 years, after which it will have no salvage value. The following table
summarizes the annual savings in labour cost and the annual maintenance costs in calibration over 6 years:
Net Cash Flow ($)
Costs ($)
Year (n)
0
Savings ($)
13,000
-13,000
1
2,300
6,000
3,700
2
2,300
7,000
4,700
3
2,300
9,000
6,700
4
2,300
9,000
6,700
5
2,300
9,000
6,700
6
2,300
9,000
6,700
Find the internal rate of return for this project.
[6]
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