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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Internal Rate of Return

Richins Company produces automobile engine parts. The company is examining the possibility of investing in a new production system that will reduce the costs of the current system. The new system will require a cash investment of $11,551,968 and will produce net cash savings of $1,800,000 per year. The system has a projected life of 10 years.

Required:

Calculate the IRR for the new production system.

To determine

Find out the IRR for the new production system.

Explanation

Internal Rate of Return:

An interest rate at which the present value of an investment’s cash inflows is equal to the present value cost of the investment is known as internal rate of return. The value of NPV is 0 in case of an internal rate of return.

Use the following formula to calculate discount factor:

Discountfactor=InvestmentAnnualcash&#

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