# Compute machine's NPV, IRR, required rate of return

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1a. Minden Company's required rate of return is 15%. The company can purchase a new machine at a cost of $40,350. The new machine would generate cash inflows of $15,000 per year and have a four-year life with no salvage value. Compute the machine's net present value. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Net present value $

1b. Is the machine an acceptable investment?

Yes

No

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2. Leven Products, Inc., is investigating the purchase of a new grinding machine that has a projected life of 15 years. It is estimated that the machine will save $20,000 per year in cash operating costs. What is the machine's internal rate of return if it costs $111,500 new? (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the "%" sign in your response.)

Internal rate of return %

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3a. Sunset Press has just purchased a new trimming machine that cost $14,125. The machine is expected to save $2,500 per year in cash operating costs and to have a 10-year life. Compute the machine's internal rate of return. (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the "%" sign in your response.)

Internal rate of return %

3b. If the company's required rate of return is 16%, did it make a wise investment?

Yes

No

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#### Solution Summary

The expert computes machine's NPV, IRR and required rate of return is examined.

Payback, Net Present Value, and Internal Rate of Return Methods

Nucore Company is thinking of purchasing a new candy-wrapping machine at a cost of $370,000. The machine should save the company approximately $70,000 in operating costs per year over its estimated useful life of 10 years. The salvage value at the end of 10 years is expected to be $15,000. (Ignore income tax effects.)

Required:

1. What is the machine's payback period?

2. Compute the net present value of the machine if the cost of capital is 12%.

3. What is the expected internal rate of return for this machine?

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