Minden Company’s required rate of return is 15%. The company can

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

Consider each case below independently. (Ignore income taxes.)

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.
Required:
1a.	Minden Company’s required rate of return is 15%. The company can purchase a new machine at a cost of $40,350. The new machine would generate cash inflows of $15,000 per year and have a four-year life with no salvage value. Compute the machine’s net present value. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Net present value

$ 2,475

1b.	Is the machine an acceptable investment?
	Yes
2.	Leven Products, Inc., is investigating the purchase of a new grinding machine that has a projected life of 15 years. It is estimated that the machine will save $20,000 per year in cash operating costs. What is the machine’s internal rate of return if it costs $111,500 new? (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the "%" sign in your response.)

	Internal rate of return	16  %
3a.	Sunset Press has just purchased a new trimming machine that cost $14,125. The machine is expected to save $2,500 per year in cash operating costs and to have a 10-year life. Compute the machine’s internal rate of return. (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate. Omit the "%" sign in your response.)

Internal rate of return

12  %

3b.	If the company’s required rate of return is 16%, did it make a wise investment?
	No