Question

Crockin Corporation is considering a machine that will save $25,000 a year in cash operating costs each year for the next six years. At the end of six years it would have no salvage value. If this machine costs $126,900 now, the machine's internal rate of return is closest to:______.
a. 3%
b. 4%
c. 5%
d. 6%

Answer 1

Answer:

c. 5%

Explanation:

The computation of machine's internal rate of return is shown below:-

Year      Cash flow

0           -$126,900

1             $25,000

2             $25,000

3             $25,000

4             $25,000

5             $25,000

6             $25,000

Rate of

return 5%  

For more clarification please look into spreadsheet which is attached.