Crockin Corporation is considering a machine that will save $9,000 a year in cash operating costs each year for the next six yea

Question

2 months ago

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Crockin Corporation is considering a machine that will save $9,000 a year in cash operating costs each year for the next six yea

rs. At the end of six years it would have no salvage value. If this machine costs $33,165 now, the machine's internal rate of return is closest to (Ignore income taxes.):

Business

1 answer:

arsen [3.4K] · Answer 1 · 2026-03-01T22:24:55+03:00

Answer:

The rate is 16%.

Explanation:

We need to note that the internal rate of return (IRR) is what makes the net present value (NPV) equal to zero.

In this scenario, we have an annuity of 9,000 for six years.

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C 9,000.00

time 6.00

rate IRR

$9000 \times \frac{1-(1+IRR)^{-6} }{tir} = PV\\$

Where the present value is equal to the investment:

$9000 \times \frac{1-(1+IRR)^{-6} }{tir} = 33,165\\$

We can refer to the annuity factor table to find the closest value.

33165 / 9000 = 3.685

By looking up values for n = 6, we find the nearest match.

Then we can perform trial and error until we identify the correct one.

In this case, the IRR can be estimated just by consulting the table.

For n = 9 and a 16% rate, the factor is 3.685.

This figure corresponds to our annuity factor, hence it indicates the rate.