### Create an Account

Home / Questions / EXERCISE 13 10 Internal Rate of Return and Net Present Value LO1 LO2 Scalia’s Cleaning Se...

# EXERCISE 13 10 Internal Rate of Return and Net Present Value LO1 LO2 Scalia’s Cleaning Service is investigating the purchase of an ultrasound machine for cleaning win- dow blinds The machine

EXERCISE 13–10 Internal Rate of Return and Net Present Value [LO1, LO2]

Scalia’s Cleaning Service is investigating the purchase of an ultrasound machine for cleaning win- dow blinds. The machine would cost \$136,700, including invoice cost, freight, and training of employees to operate it. Scalia’s has estimated that the new machine would increase the company’s cash flows, net of expenses, by \$25,000 per year. The machine would have a 14-year useful life with no expected salvage value.

Required:

(Ignore income taxes.)

1.       Compute the machine’s internal rate of return to the nearest whole percent.

2.       Compute the machine’s net present value. Use a discount rate of 16%. Why do you have a zero net present value?

3.       Suppose that the new machine would increase the company’s annual cash flows, net of expenses, by only \$20,000 per year. Under these conditions, compute the internal rate of return to the nearest whole percent.

Jun 27 2020 View more View Less