Question

g Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.50 million and create incremental cash flows of $460,239.00 each year for the next five years. The cost of capital is 11.43%. What is the internal rate of return for the J-Mix 2000?

Answer 1

Answer:

16.2%

Explanation:

using an excel spreadsheet or financial calculator, you can determine the internal rate of return (IRR) of the project:

initial outlay = -$1,500,000

NCF years 1 - 5 = $460,239

IRR = 16.20%

the internal rate of return of a project is the discount rate at which the project's NPV = 0. If you discount the five cash flows using 16.20%, then the present value = $1,500,000 which is equal to the initial outlay.