Jones Company Is Considering the Purchase of a New Machine

question 69

Multiple Choice

Jones Company is considering the purchase of a new machine for $57,000.The machine would generate an annual cash flow of $17,411 for five years.At the end of five years, the machine would have no salvage value.The company's cost of capital is 12 percent.The company uses straight-line depreciation with no mid-year convention. What is the internal rate of return for the machine rounded to the nearest percent, assuming no taxes are paid?

• A) 12%
• B) 18%
• C) 14%
• D) 16%

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Definitions:

Weighted-Average Method

An inventory costing method that determines the cost of goods sold and ending inventory based on the average cost of all units available for sale during the period.

Total Cost Accounted

The aggregate cost that has been recorded or reported for a certain product, project, or activity, including direct and indirect costs.

Conversion Costs

The costs necessary to convert raw materials into finished goods, including labor and overhead expenses.

Weighted-Average Method

An inventory costing method that calculates the cost of goods sold and ending inventory value based on the average cost of all goods available for sale during the period.