Genuine Products Inc. requires a new machine. Two companies have submitted bids, and you have been assigned the task of choosing one of the machines.
Cash flow analysis indicates the following:
Year Machine AMachine B -
0-$2,000-$2,000
1 0 832
2 0 832
3 0 832
4 3,877 832
What is the internal rate of return for each machine?
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A. B. C. D. E.C
Solve for numerical PVIF and PVIFA then obtain corresponding interest rate from table Machine A $2,000 = $3,877(PVIF(IrrA,4))
0.51586 = PVIFA(IrrA,4)
IRR(A) = 18%.
Machine B $2,000 = $832(PVIFA(IrrB,4))
2.40385 = PVIFA(IrrB,4)
IRR(B) = 24%.