Purchase Solution

Determining the IRR in the given case

Not what you're looking for?

Ask Custom Question

Booster Labs is considering acquiring new equipment that management estimates will reduce its cash operating expenses by $50,000 each year for the next five years. After five years, the company believes the equipment will be technologically obsolete and will have no salvage value. The equipment will cost $180,000 and the company will have to spend $20,000 immediately to train its staff to use the new equipment.

What is the internal rate of return of this investment project?

a) 25%
b) 12%
c) 8%
d) 5%

Purchase this Solution
Solution Summary

The solution determines the IRR in the given case.

Solution Preview

Please refer attached file for better understanding of formulas in MS Excel.

Initial Cash outflow = (cost of machine+training ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution
Free BrainMass Quizzes
Learning Lean

This quiz will help you understand the basic concepts of Lean.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

View More Free Quizzes
Related BrainMass Solutions

  • Using cost of capital to determine feasibility of a project

    It is used as the discount rate applied to future cash flows for deriving a business's net present value. WACC can be used as a hurdle rate for IRR analysis. The solution depicts the steps to estimate the WACC in the given case.

  • IRR and Cash Multiples

    Furthermore, Keown et al noted that in the case of IRR, the possibility of arriving at multiple IRR for a project may complicate the decision process and there is the assumption that cash flows from the project are reinvested in their IRR.

  • Discuss NPV decision rule; calculate payback period, IRR, profitability index

    In determining whether to accept or reject a particular project, the IRR decision rule is ? Accept a project if IRR > rp ? Reject a project if IRR< rp ? Indifferent if IRR = rp ?

  • Calculating NPVs and IRRs of given projects

    In such a case, we decide on the basis of NPV of project as it is in line with the basic objective of Value maximization of any firm. NPV and IRR are two important capital budgeting parameters and help us in selecting suitable project/s.

  • Multiple Choice: Capital Budgeting

    459061 The Payback method is widely used in capital budgeting because it is simple and does a good job of determining the correct accept/reject decision. 1.

  • Identifying the crossover rate in the given case

    In the above case, NPV is 25 for both projects at 21.86%. Cross over point is 21.86% in the given case.

  • Cost of Capital

    Thus if the project is returning more than the WACC then it can be accepted. If IRR> WACC then it can be accepted, otherwise it will be rejected. This explains the step of computing Cost of capital elucidated by practical case.

  • Project's Payback period, NPV, PI, and IRR.

    10% as the discount rate that was given for the project.

  • Calculating NPV, Profitability Index and IRR

    The solution describes the steps in determining NPV, profitability index and rate of return for given proposals.

View More Related Solutions