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Comparing the internal rate of returns

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Louie's Leisure Products must choose between buying two machines with different lives. Machines A and B are designed differently, but have identical capacity and do the same job.

Machine A costs $1000,000 and lasts 5 years. It costs $400,000 per year to operate. Machine B costs $400,000 and lasts 2 years. It costs $300,000 per year to operate.

a. Which machine should the company acquire? The opportunity cost of capital is 6%.

b. Could you choose one of the machines by comparing the Internal Rate of Returns (IRR) of the two projects? Why?

Reference no: EM132499188

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