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Estimate the projects internal rate of return

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Question

Levio Ltd is a plastic chair manufacturer and is considering purchasing a new machine. The machine would cost a total of $70,000 with $35,000 payable today and the balance payable in one year's time. It is estimated that this machine would increase contribution at the end of each year, for four years by $23,000 per year.

At the end of 4 years the company would then be able to sell the machine for $5,000. The company has an expected rate of return on all investments of 12%. Required

(a) Determine the Net Present Value for this project.

(b) By using a second discount rate of 20%, estimate the project's Internal Rate of Return .

(c) Based on your calculations, from both parts 1 and 2, recommend whether the project should be accepted.

(d) Briefly discuss whether you feel Internal Rate of Return or Net Present Value, is the best method of appraising projects.

Reference no: EM132321946

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