Linex Corporation Is Considering the Purchase of a New Machine

question 23

Multiple Choice

Linex Corporation is considering the purchase of a new machine that costs $18,000, has an expected useful life of 10 years, and has no salvage value. Linex estimates that the machine will save the company $3,000 per year over the 10-year life. The company's hurdle rate is 12%. The present value annuity factors of 10, 12, and 14% for 10 years are 6.145, 5.650, and 5.216, respectively. The present value of $1 discounted for 10 years at 12% is 0.322. Given the data provided, the internal rate of return on the machine is:

• A) Less than 10%
• B) Between 10% and 12%
• C) Between 12% and 14%
• D) Greater than 14%

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Definitions:

Humerus

The humerus is the long bone in the upper arm, extending from the shoulder to the elbow.

Radius

A bone in the forearm that extends from the lateral side of the elbow to the thumb side of the wrist, also refers to the half-length of a circle's diameter.

Tibia

The inner and typically larger of the two bones between the knee and the ankle in vertebrates, parallel with the fibula.

Friction

The resistance that one surface or object encounters when moving over another.