ABC is considering the purchase of a $5,000 souffle maker which has a life of 5 years and will be depreciated to a remaining book value of $1,000.

The machine will produce 2000 souffles per year, with each costing $2 to make and priced at $4.

In order for the machine to work, an increase in net working capital of $1,000 is required at the beginning and it will be fully recovered at the end of year 5.

The used souffle maker can be expected to sell for $2,000 five years later.

Assume that the firm is profitable and the tax rate is 40%. Find the IRR for the project.

Answer rating: 100% (QA)

A C E G IJ L 1 YEAR 2 3 4 5000 1000 1000 2000 Investment Book value of mac... View the full answer