Mapleton Company is considering an investment in a machine that would reduce annual labor costs by $30,000 . The machine has an expected life of 10 years with no salvage value. The machine would be depreciated according to the straight-line method over its useful life. The company's marginal tax rate is 30 percent. Refer to Mapleton Company. Assume the company pays $250,000 for the machine. What
is the expected internal rate of return on the machine? Present value tables or a financial calculator are required.
a. between 8 and 9 percent
b. between 3 and 4 percent
c. between 17 and 18 percent
d. less than 1 percent
B
$250,000/$30,000 = 8.33
Using PV of Annuity Table and 10 years, this constant falls between 3% and 4%
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