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Phoxco is considering automating its production line at a cost of $40,000 to acquire the necessary equipment. The annual cost savings are expected to be $8,000 for 14 years. The firm requires a 20% rate of return. Ignore income taxes.
What is the internal rate of return on this investment?
Cash Payback Period
The length of time it takes for an investment to generate enough cash flow to recoup the original investment.
Annual Net Cash Flows
The net amount of cash that is received or expended by a business during a year, after all cash inflows and outflows are accounted for.
Expected Total Cash Flows
The anticipated sum of all cash inflows and outflows associated with an investment over a specific period.
Salvage Value
The estimated residual value of an asset at the end of its useful life, reflecting what it could be sold for or scrapped.
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