The management of Zachery Corporation is considering the purchase of an automated molding machine that would cost $203,255, would have a useful life of 5 years, and would have no salvage value. The automated molding machine would result in cash savings of $65,000 per year due to lower labor and other costs. (Ignore income taxes.)Refer to Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.Required:Determine the internal rate of return on the investment in the new automated molding machine.
What will be an ideal response?
Factor of the internal rate of return = Investment required ÷ Annual net cash inflow
= $203,255 ÷ $65,000 = 3.127
The factor of 3.127 for 5 years represents an internal rate of return of 18%.
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