Question

Installing an automated production system costing $278,000 is initially expected to save Zia Corporation $52,000 in expenses annually. If the system needs $5,000 in operating and maintenance costs each year and has a salvage value of $25,000 at Year 10. a. What is the IRR of this system

Answer 1

Answer:

11.63%

Explanation:

Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested.

IRR can be calculated using a financial calculator:

Cash flow in year 0 = $-278,000

Cash flow each year from year 1 to 9 = $52,000 - $5, 000 = $47,000

Cash flow in year 10 = $47,000 + $25,000 = $72,000

IRR = 11.63%

To find the IRR using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.

I hope my answer helps you