Solution-Calculate the internal rate of return of the

Calculate the internal rate of return of the machine

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Reference no: EM133068756

Question - Daily Ltd. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $325,000. The machine is expected to last 5 years and will be depreciated to zero by year 5 using the straight-line method. It will require an investment of $75,000 for the working capital which can be fully recovered at the end of the 5th year. The company's required rate of return is 12 percent. Traditionally the company has used a rule of thumb that a proposal should not be accepted unless it has a payback period that is less than 50% of the asset's estimated useful life. The annual cash flows have the following projections.

Year	Cash Flow
1	$95,000
2	$100,000
3	$120,000
4	$150,000
5	$90,000

Required - Calculate the Internal rate of return (IRR) of the machine, using the interpolation method and Based on the three methods (IRR, Payback Period and Net Present Value) determine whether the project be accepted and explain why.

Reference no: EM133068756

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Calculate the internal rate of return of the machine

Reference no: EM133068756

Reference no: EM133068756

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