Question

CNElectronics Ltd is evaluating whether to invest today in a machine that cost $200,000. With the...

CNElectronics Ltd is evaluating whether to invest today in a machine that cost $200,000. With the new machine, the firm projects it will be able to receive $40,000 at the end of every year

for the next 7 years. At the end of the 7 years, the company will scrap the machine and do not expect to receive any salvage value for it.

Given the cost of capital for the firm is 12%, calculate the internal rate of return (IRR) of this investment.

Explain whether the firm should purchase the machine. Give your reason(s)

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