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(Ignore income taxes in this problem.) Allen Corporation's required rate of return is 14%. The company is considering the purchase of a new machine that will save $10,000 per year in cash operating costs. The machine will cost $39,540 and will have an 8-year useful life with zero salvage value. Straight-line depreciation will be used.

Required:

Compute the machine's internal rate of return. Would you recommend purchase of the machine? describe.

 

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