Question

Krauth Company purchased a machine for $162,600. The machine has a life
of twelve years with no salvage value. It is expected that the machine will
generate annual net cash inflows of $30,000 per year over its useful life.
Assume Krauth Company employs a cost of capital of 10% on all capital
investment projects.

The internal rate of return (IRR) on the machine is closest to:

Group of answer choices

9%

10%

12%

14%

15%

16%

Answer 1

Option E: 15%

Explanation:

Year	Amount ($)
0	$(162,600.00)
1	$    30,000.00
2	$    30,000.00
3	$    30,000.00
4	$    30,000.00
5	$    30,000.00
6	$    30,000.00
7	$    30,000.00
8	$    30,000.00
9	$    30,000.00
10	$    30,000.00
11	$    30,000.00
12	$    30,000.00
IRR	15.00%

Calculation:

Hence,

Option 'E' is correct and rest all are incorrect.

In case of any doubt, please feel free to comment.