Question

What is the IRR for a machine if the initial cost is 475,000 and life of...

What is the IRR for a machine if the initial cost is 475,000 and life of the machine is 10 years? The salvage value for the machine is 15% of the initial cost. The benefits that the machine will bring in for the first year is $125,000 and will increase by 6% each year. The inflation applicable to first year costs of $45,000 is 4.5% per year.

Homework Answers

Answer #1
Calculation of IRR of the machine
Year Initial cost Benefits Costs Salvage Value Net Cash flows
a b c d e b+c+d+e
0 -$475,000 -$475,000
1 $125,000 -$45,000 $80,000
2 $132,500 -$47,025 $85,475
3 $140,450 -$49,141 $91,309
4 $148,877 -$51,352 $97,525
5 $157,810 -$53,663 $104,146
6 $167,278 -$56,078 $111,200
7 $177,315 -$58,602 $118,713
8 $187,954 -$61,239 $126,715
9 $199,231 -$63,995 $135,236
10 $211,185 -$66,874 $71,250 $215,561
IRR of the machine = 17.46%
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