Ivanhoe Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aideddesign and manufacturing machine for $435,400, The company believes that with this new machine it will improve productivity andincrease quality, resulting in an increase in net annual cash flows of $105,900 for the next 6 years. Management requires a 10% rate ofreturn on all new investments. Click here to view the factor table.Calculate the internal rate of return on this new machine. (Round answer to O decimal places, eg. 13%. For calculation purposes, use 5decimal places as displayed in the factor table provided.)Internal rate of returnShould the investment be accepted?The investmentv be accepted.

Answer) Calculation of Internal rate of return Internal rate of return is the rate at which the…

Ivanhoe 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 $435,400, The company believes that with this new machìne it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $105,900 for the net 6 years. Management requires a 10% rate of return on all new investments. Click here to view the factor table Calculate the internal rate of return on this new machine. (Round answer to O decimal places, eg 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided) Internal rate of return Should the investment be accepted? The investment be accepted.

Ivanhoe 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 $435,400, The company believes that with this new machìne it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $105,900 for the net 6 years. Management requires a 10% rate of return on all new investments. Click here to view the factor table Calculate the internal rate of return on this new machine. (Round answer to O decimal places, eg 13%. For calculation purposes, use 5 decimal places as displayed in the factor table provided) Internal rate of return Should the investment be accepted? The investment be accepted.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

See similar textbooks

Similar questions

Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
A restaurant is considering the purchase of new tables and chairs for their dining room with an initial investment cost of $515,000, and the restaurant expects an annual net cash flow of $103,000 per year. What is the payback period?
Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be 800,000 per year. The system costs 4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? 2. Sterling Wetzel has just invested 270,000 in a restaurant specializing in German food. He expects to receive 43,470 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Sterling make a good decision?
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?