A machine has an investment cost of $60,000 at time 0. The present values (at time 0) of the expected net cash inflows from the machine over its useful life are： Discount rate Present value of cash inflows 10% $64,600 15% $58,200 20% $52,100 What is the internal rate of return (IRR) of the machine investment?
A、Below 10%
B、Between 10% and 15%
C、Between 15% and 20%
D、Over 20%
A、Below 10%
B、Between 10% and 15%
C、Between 15% and 20%
D、Over 20%
【参考答案及解析】
$ Investment (60,000) PV of cash inflow 64,600 NPV @ 10% 4,600 $ Investment (60,000) PV of cash inflow 58,200 NPV @ 15% (1,800) The IRR of the machine investment is therefore between 10% and 15% because the NPV falls from $4,600 at 10% to -$1,800 at 15%. Therefore at some point between 10% and 15% the NPV = 0. When the NPV = 0, the internal rate of return is reached.
$ Investment (60,000) PV of cash inflow 64,600 NPV @ 10% 4,600 $ Investment (60,000) PV of cash inflow 58,200 NPV @ 15% (1,800) The IRR of the machine investment is therefore between 10% and 15% because the NPV falls from $4,600 at 10% to -$1,800 at 15%. Therefore at some point between 10% and 15% the NPV = 0. When the NPV = 0, the internal rate of return is reached.