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# 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

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 %

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

#### Solution Summary

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

\$2.19

## 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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