CHECK FIGURE

$(2),$ IRR $=$ approx. $22\%$

Marlon Plastics purchased a new machine one year ago at a cost of $$750,000.$ Although the machine operates well, the president of the company is considering replacing it with a new electronic machine that has just entered the market. The new machine would slash the annual operating costs by two$-$thirds, as shown in the data provided below:

Page $494$

$\backslash$table$[[,$A$,$B$,$C$],[1,,$Present Machine,Proposed New Machine$],[2,$Estimated useful life in years,$6,5],[3,$Purchase cost new,$$750,000,$$$1,125,000],[4,$Annual operating costs,$525,000,175,000],[5,$Annual straight$-$line depreciation,$125,000,225,000],[6,$Remaining book value,$625,000,-],[7,$Salvage value now,$125,000,-],[8,$Salvage value in five years,$-,-]]$

The president's assistant prepared the following analysis: