Southern Manufacturing Ltd. is considering the investment of $230,000 in a new machine. The machine will generate

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Southern Manufacturing Ltd. is considering the investment of $230,000 in a new machine. The machine will generate cash flow of $40,000 per year for each year of its eight-year life and will have a salvage value of $26,000 at the end of its life. The company’s cost of capital is 10%.


Required:

a. Calculate the net present value of the proposed investment.

b. What will the internal rate of return on this investment be relative to the cost of capital? Explain your answer.

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