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A company is considering investing in a new machine that requires a cash payment of $47907 today. The machine will generate annual cash flows of $19946 for the next three years. What is thw internal rate of return if the company buys this machine

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abiolataiwo2015

Answer:

12%

Explanation:

Calculation for the internal rate of return if the company buys this machine

Using this formula

IRR = Initial investment/Annual Cash flow

Where,

Initial investment =$47,907

Annual Cash flow =$19,946

Let plug in the formula

IRR= $47,907/$19,946

=2.402

Using PV factor table = 2.402

IRR = 12%

Therefore internal rate of return if the company buys this machine will be 12%