Industrial Machines needs to purchase a new machine costing $1.25 million. Management is estimating the machine will generate cash inflows of $210,000 the first year and $350,000 for the following four years. If management requires a minimum 10 percent rate of return, should the firm purchase this particular machine based on its IRR?

The firm shouldn't purchase the machine because the IRR is less than the required minimum

Explanation:

Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested

IRR can be calculated using a financial calcuator

Cash flow in year 0 = $-1.25 million.

Cash flow in year 1 = $210,000

Cash flow in year 2 to 5 = $350,000

IRR = 8.51%

The firm shouldn't purchase the machine because the IRR is less than the required minimum

To find the IRR using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button

answer; /// the above statement is (true); good luck