Smith Corporation is involved in the evaluation of a new computer-integrated manufacturing system. The system has a projected initial cost of $1,000,000 . It has an expected life of six years, with no salvage value, and is expected to generate annual cost savings of $250,000 . Based on Smith Corporation's analysis, the project has a net present value of $57,625. Refer to Smith Corporation. What
is the project's internal rate of return? Present value tables or a financial calculator are required.
a. between 12.5 and 13.0 percent
b. between 11.0 and 11.5 percent
c. between 11.5 and 12.0 percent
d. between 13.0 and 13.5 percent
A
$1,000,000/$250,000 = 4.000
Using the Present Value of Annuity Table for 6 years, the rate falls between 12.5% and 13%
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