The Production Department Is Proposing the Purchase of an Automatic

question 149

Multiple Choice

The production department is proposing the purchase of an automatic insertion machine. It has identified 3 machines, each with an estimated life of 10 years. Which machine offers the best internal rate of return? $$\begin{array} { | l | l | l | l | } \hline & \text { Machine A } & \text { Machine B } & \text { Machine C } \\\hline \text { Annual net cash flows } & \$ 50,000 & \$ 40,000 & \$ 75,000 \\\hline \text { Average investment } & \$ 250,000 & \$ 300,000 & \$ 500,000 \\\hline\end{array}$$

• A) Machine B only
• B) Machine C only
• C) Machines A and B
• D) Machine A only

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Definitions:

Prepaid Services

Expenses paid in advance for services which will be received in the future.

Unearned Fees

Income received by a company for services yet to be provided or completed; recognized as a liability until the service is performed.

Journalize

The process of recording financial transactions in the chronological order in a company's general journal.

Depreciation

Systematic assignment of a tangible asset’s value over its functional lifespan.