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steposvetlana [31]
3 years ago
14

The Tool Box needs to purchase a new machine costing $1.46 million. Management is estimating the machine will generate cash infl

ows of $223,000 the first year and $600,000 for the following three years. If management requires a minimum 12 percent rate of return, should the firm purchase this particular machine based on its IRR? Why or why not?
Yes, because the IRR is 10.75 percent
Yes, because the IRR is 12.74 percent
No, because the IRR is 10.75 percent
No, because the IRR is 12.74 percent
The answer cannot be determined as there are multiple IRRs
Business
1 answer:
dimulka [17.4K]3 years ago
7 0

Answer:

yes, because the IRR is 12.74 percent

Explanation:

given data

present value =  $1.46 million

first year cash inflows c1 =  $223,000

next three years cash inflows c2,c3,c4 = $600,000

rate of return minimum = 12 %

to find out

firm purchase this particular machine based on its IRR

solution

we consider here IRR is = r

we apply here present value formula that is express as

present value = \frac{c1}{(1+r)} +\frac{c2}{(1+r)^2} +\frac{c3}{(1+r)^3} +\frac{c4}{(1+r)^4}  .......1

put here value  

$1.46 million = \frac{223000}{(1+r)} +\frac{600000}{(1+r)^2} +\frac{600000}{(1+r)^3} +\frac{600000}{(1+r)^4}    

solve it we get

r = 12.74%

so here IRR = 12.74% is higher than the rate of return minimum = 12%

so it will create a positive net present value of cash inflows

and project will accepted and firm purchase the machine

so we can say yes, because the IRR is 12.74 percent  

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Answer:

total equivalent units for materials = 6,310

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4 0
3 years ago
A truck rental company rents a moving truck for one day by charging $ 34 plus $ 0.05 per mile. Write a linear equation that rela
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Answer:

C = 0.05*x + 34

Explanation:

There are several ways to approach this problem. However, we will follow a logical and simple procedure.

It is always possible to write any linear equation as:

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The problem statement guarantees us that b=34, because if we do not drive any mile (x=0), then the cost should be equal to $ 34. Also, we know that m=0.05, because every driven mile (increase in x by 1) the cost should increase by $5. Therefore, we can write the linear equation as:

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A sportswear manufacturer is introducing a new line of sneakers. To introduce the new line, the company must pay out a fixed cos
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