(Ignore Income Taxes in This Problem

question 15

Multiple Choice

(Ignore income taxes in this problem.) Treads Corporation is considering the purchase of a new machine to replace an old machine that is currently being used. The old machine is fully depreciated but can be used by the corporation for five more years. If Treads decides to buy the new machine, the old machine can be sold for $60,000. The old machine would have no salvage value in five years.
The new machine would be purchased for $1,000,000 in cash. The new machine has an expected useful life of five years with no salvage value. Due to the increased efficiency of the new machine, the company would benefit from annual cash savings of $300,000.
Treads Corporation uses a discount rate of 12%.
-The internal rate of return of the project is closest to:

• A) 14%
• B) 16%
• C) 18%
• D) 20%

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Definitions:

Prohibited Use

Activities or actions that are explicitly forbidden by law, regulation, or contract.

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Refers to a contract or clause that is not legally binding or enforceable in a court of law due to certain deficiencies or violations of law.

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