Ask Question, Ask an Expert

+61-413 786 465

[email protected]

Ask Financial Accounting Expert

Accounting


Home >> Financial Accounting

Selection of a machine through IRR.

The following machines are mutually exclusive.You may select only one. 

Machine A will cost $150,000, save the company $40,000 per year for 5 years and can be sold for an additional $20,000 at the end of 5 years.  At your firm's 10% cost of capital, it has a Net Present Value of $14,050.  Its IRR (or ROI) is 13.4%.

Machine B will cost $190,000, save the company $50,000 per year for 5 years, and have a salvage value of $25,000.  At your firm's 10% cost of capital, it has a Net Present Value of $15,062. Its IRR (or ROI) is 12.9%.

a. Which one would you choose?

b. Explain what is meant by the term,Internal Rate of Return.

PRESENT VALUE OF A SINGLE PAYMENT

(Payment to be received in the future)

Year

8%

9%

10%

11%

12%

13%

14%

15%

1

0.9259

0.9174

0.9091

0.9009

0.8929

0.8850

0.8772

0.8696

2

0.8573

0.8417

0.8264

0.8116

0.7972

0.7831

0.7695

0.7561

3

0.7938

0.7722

0.7513

0.7312

0.7118

0.6931

0.6750

0.6575

4

0.7350

0.7084

0.6830

0.6587

0.6355

0.6133

0.5921

0.5718

5

0.6806

0.6499

0.6209

0.5935

0.5674

0.5428

0.5194

0.4972

6

0.6302

0.5963

0.5645

0.5346

0.5066

0.4803

0.4556

0.4323

7

0.5835

0.5470

0.5132

0.4817

0.4523

0.4251

0.3996

0.3759

8

0.5403

0.5019

0.4665

0.4339

0.4039

0.3762

0.3506

0.3269

9

0.5002

0.4604

0.4241

0.3909

0.3606

0.3329

0.3075

0.2843

10

0.4632

0.4224

0.3855

0.3522

0.3220

0.2946

0.2697

0.2472

11

0.4289

0.3875

0.3505

0.3173

0.2875

0.2607

0.2366

0.2149

12

0.3971

0.3555

0.3186

0.2858

0.2567

0.2307

0.2076

0.1869

13

0.3677

0.3262

0.2897

0.2575

0.2292

0.2042

0.1821

0.1625

14

0.3405

0.2992

0.2633

0.2320

0.2046

0.1807

0.1597

0.1413

15

0.3152

0.2745

0.2394

0.2090

0.1827

0.1599

0.1401

0.1229

16

0.2919

0.2519

0.2176

0.1883

0.1631

0.1415

0.1229

0.1069

17

0.2703

0.2311

0.1978

0.1696

0.1456

0.1252

0.1078

0.0929

18

0.2502

0.2120

0.1799

0.1528

0.1300

0.1108

0.0946

0.0808

19

0.2317

0.1945

0.1635

0.1377

0.1161

0.0981

0.0829

0.0703

20

0.2145

0.1784

0.1486

0.1240

0.1037

0.0868

0.0728

0.0611

PRESENT VALUE OF AN ORDINARY ANNUITY

(Payments at the end of each year)

Year

8%

9%

10%

11%

12%

13%

14%

15%









1

0.9259

0.9174

0.9091

0.9009

0.8929

0.8850

0.8772

0.8696

2

1.7833

1.7591

1.7355

1.7125

1.6901

1.6681

1.6467

1.6257

3

2.5771

2.5313

2.4869

2.4437

2.4018

2.3612

2.3216

2.2832

4

3.3121

3.2397

3.1699

3.1024

3.0373

2.9745

2.9137

2.8550

5

3.9927

3.8897

3.7908

3.6959

3.6048

3.5172

3.4331

3.3522

6

4.6229

4.4859

4.3553

4.2305

4.1114

3.9975

3.8887

3.7845

7

5.2064

5.0330

4.8684

4.7122

4.5638

4.4226

4.2883

4.1604

8

5.7466

5.5348

5.3349

5.1461

4.9676

4.7988

4.6389

4.4873

9

6.2469

5.9952

5.7590

5.5370

5.3282

5.1317

4.9464

4.7716

10

6.7101

6.4177

6.1446

5.8892

5.6502

5.4262

5.2161

5.0188

11

7.1390

6.8052

6.4951

6.2065

5.9377

5.6869

5.4527

5.2337

12

7.5361

7.1607

6.8137

6.4924

6.1944

5.9176

5.6603

5.4206

13

7.9038

7.4869

7.1034

6.7499

6.4235

6.1218

5.8424

5.5831

14

8.2442

7.7862

7.3667

6.9819

6.6282

6.3025

6.0021

5.7245

15

8.5595

8.0607

7.6061

7.1909

6.8109

6.4624

6.1422

5.8474

16

8.8514

8.3126

7.8237

7.3792

6.9740

6.6039

6.2651

5.9542

17

9.1216

8.5436

8.0216

7.5488

7.1196

6.7291

6.3729

6.0472

18

9.3719

8.7556

8.2014

7.7016

7.2497

6.8399

6.4674

6.1280

19

9.6036

8.9501

8.3649

7.8393

7.3658

6.9380

6.5504

6.1982

20

9.8181

9.1285

8.5136

7.9633

7.4694

7.0248

6.6231

6.2593

 

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M9725708

Have any Question?


Related Questions in Financial Accounting

Case study - the athletes storerequiredonce you have read

Case Study - The Athletes Store Required: Once you have read through the assignment complete the following tasks in order and produce the following reports Part 1 i. Enter the business information including name, address ...

Scenario assume that a manufacturing company usually pays a

Scenario: Assume that a manufacturing company usually pays a waste company (by the pound to haul away manufacturing waste. Recently, a landfill gas company offered to buy a small portion of the waste for cash, saving the ...

Lease classification considering firm guidance issues

Lease Classification, Considering Firm Guidance (Issues Memo) Facts: Tech Startup Inc. ("Lessee") is entering into a contract with Developer Inc. ("Landlord") to rent Landlord's newly constructed office building located ...

A review of the ledger of oriole company at december 31

A review of the ledger of Oriole Company at December 31, 2017, produces these data pertaining to the preparation of annual adjusting entries. 1. Prepaid Insurance $19,404. The company has separate insurance policies on i ...

Chelsea is expected to pay an annual dividend of 126 a

Chelsea is expected to pay an annual dividend of $1.26 a share next year. The market price of the stock is $24.09 and the growth 2.6 percent. What is the cost of equity?

Sweet treats common stock is currently priced at 3672 a

Sweet treats common stock is currently priced at $36.72 a share. The company just paid $2.18 per share as its annual dividend. The dividends have been increasing by 2,2 percent annually and are expected to continue doing ...

Highway express has paid annual dividends of 132 133 138

Highway Express has paid annual dividends of $1.32, $1.33, $1.38, $1.40, and $1.42 over the past five years, respectively. What is the average divided growth rate?

An investment offers 6800 per year with the first payment

An investment offers $6,800 per year, with the first payment occurring one year from now. The required return is 7 percent. a. What would the value be today if the payments occurred for 20 years?  b. What would the value ...

Oil services corp reports the following eps data in its

Oil Services Corp. reports the following EPS data in its 2017 annual report (in million except per share data). Net income $1,827 Earnings per share: Basic $1.56 Diluted $1.54 Weighted average shares outstanding: Basic 1 ...

At the start of 2013 shasta corporation has 15000

At the start of 2013, Shasta Corporation has 15,000 outstanding shares of preferred stock, each with a $60 par value and a cumulative 7% annual dividend. The company also has 28,000 shares of common stock outstanding wit ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As

Follow Us

© Copyright 2013-14 mywordsolution.com All rights reserved