(a) Net present value of machine
Pm=-C+V/(1+i)^n=37000-1000/1.08^4
=-36264.97
=-36265 (rounded to nearest dollar)
Cost of machine amortized over 4 years (annualized cost)
Ac=Pm(A/P,i,n)=-36264.97(A/P,0.08,4)=-36264.97(.08*(1.08^4)/(1.08^4-1)
=-10949.15
Expected year-end cash flow = annualized return - annualized cost =>
12000=return - 10949.15
(b) Internal rate of return of machine
=return/cost - 1
=(12000-(-10949.15)/10949.15-1
=2.096-1
=1.096
=109.6%
I believe your answer should be 8, I am sorry if I am wrong, please mark mine with a low star rating if I am false
