In 1916, the Ford Motor Company sold 500,000 Model T Fords at a price of $440. Henry Ford believed that he could increase sal
1 answer:
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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 = .......1
put here value
$1.46 million =
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