Exercise 13-9 Internal Rate of Return and Net Present Value [LO1, LO2]

Scotia Family Health Team is investigating purchasing an ultrasound machine for use in its patient clinic. The machine would cost $77,900, including invoice cost, freight, and the training of employees to operate it. Scotia has estimated that the new machine would increase the companys cash flows, net of expenses, by $12,000 per year. The machine would have a twelve-year useful life with no expected salvage value. (Ignore income taxes.) (Hint: Use Microsoft Excel to calculate the discount factor(s).)

Required: 1. Compute the machines IRR. (Do not round intermediate calculations and round your final answer to nearest whole number.)

2. Compute the machines net present value. Use a discount rate of 11%. (Do not round intermediate calculations and round your final answer to the nearest dollar amount.)

3. Suppose that the new machine would increase the companys annual cash flows, net of expenses, by only $10,300 per year. Under these conditions, compute the internal rate of return. (Do not round intermediate calculations and round your final answer to nearest whole number.)

Internal rate of return Net present value Internal rate of return