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King’s Department Store is contemplating the purchase of a new machine at a cost of $27,653. The machine will provide $4,500 per year in cash flow for ten years. King’s has a cost of capital of 12 percent. Use Appendix D for an approximate answer but calculate your final answer using the financial calculator method.
a. What is the internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
b. Should the project be undertaken?
Technology Corp. is considering a $238,160 investment in a new marketing campaign that it anticipates will provide annual cash flows of $52,000 for the next five years. The firm has a 6% cost of capital. What should the analysis indicate to the firm's managers?
IRR is 3%. Reject the project.
IRR is 6%. Accept the project.
IRR is 4%. Reject the project.
IRR is 8%. Accept the project.
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