How to evaluate the internal rate of return

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Scotia Family Health Team is investigating purchasing an ultrasound machine for use in its patient clinic. The machine would cost $97,900, including invoice cost, freight, and the training of employees to operate it. Scotia has estimated that the new machine would increase the company's cash flows, net of expenses, by $17,000 per year. The machine would have a nine-year useful life with no expected salvage value. (Ignore income taxes.)

Required:

Question 1. Compute the machine's IRR

Question 2. Compute the machine's net present value. Use a discount rate of 10%.

Question 3. Suppose that the new machine would increase the company's annual cash flows, net of expenses, by only $15,000 per year. Under these conditions, compute the internal rate of return.

Reference no: EM132586769

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