Bruno Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for $430,000. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $101,000 for the next 6 years. Management requires a 10% rate of return on all new investments.
Bruno Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for $430,000. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $101,000 for the next 6 years. Management requires a 10% rate of return on all new investments.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question 01
Bruno Corporation is involved in the business of injection molding of plastics. It is considering the
purchase of a new computer-aided design and manufacturing machine for $430,000. The company
believes that with this new machine it will improve productivity and increase quality, resulting in an
increase in net annual cash flows of $101,000 for the next 6 years. Management requires a 10% rate of
return on all new investments.
Instructions
Calculate the internal rate of return on this new machine. Should the investment be accepted?
Question 02
Legend Service Center just purchased an automobile hoist for $32,400. The hoist has an 8-year life and
an estimated salvage value of $3,000. Installation costs and freight charges were $3,300 and $700,
respectively. Legend uses straight-line depreciation.
The new hoist will be used to replace mufflers and tires on automobiles. Legend estimates that the new
hoist will enable its mechanics to replace 5 extra mufflers per week. Each muffler sells for $72 installed.
Tho co
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