Bruno Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for $ 430,000. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $ 101,000 for the next 6 years. Management requires a 10 % rate of return on all new investments.
Instructions
Calculate the internal rate of return on this new machine. Should the investment be accepted?
E12-8
Pierre ' s Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $ 300,000. A new salon will normally generate annual revenues of $ 70,000, with annual expenses( including depreciation) of $ 41,500. At the end of 15 years the salon will have a salvage value of $ 80,000.
Instructions
Calculate the annual rate of return on the project.