Question

Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.98 million and create incremental cash flows of $441,716.00 each year for the next five years. The cost of capital is 11.15%. What is the internal rate of return for the J-Mix 2000

Answer 1

We first chalk out the cash-flows in excel

The machine cost is accompanied by a negative sign since the cost is a cash-outflow

IRR for J-Mix 2000 can be found by using IRR function in excel

IRR = IRR(All cash-flows)

Year	Cash-flows
0	-1980000
1	441,716
2	441,716
3	441,716
4	441,716
5	441,716
IRR	3.756%

Hence, the IRR of J-Mix 2000 = 3.756%