Callendula Company Is Considering the Purchase of a New Machine

question 91

Multiple Choice

Callendula Company is considering the purchase of a new machine for $80,000. The machine would generate an annual cash flow before depreciation and taxes of $28,778 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 and has a 40 percent tax rate. What is the internal rate of return for the machine rounded to the nearest percent?

• A)between 16 and 18%
• B)between 14 and 16%
• C)between 12 and 14%
• D)below 12%

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