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    Determining the IRR in the given case

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    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%

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    Solution Preview

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

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

    Solution Summary

    The solution determines the IRR in the given case.