Old Southwest Canning Co. has determined that any one of four machines can be used in...

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Finance

Old Southwest Canning Co. has determined that any one of fourmachines can be used in its chili-canning operation. The cost andrevenues of the machines are estimated below, and all machines havea 7-year life. If the minimum attractive rate of return is 10% peryear, determine the incremental rate of return of the lastcomparison on the basis of a rate of return analysis. (As of %)
Machine First Cost, $ Annual Revenue, $
1 ?105,000 21,000
2 ?123,000 41,000
3 ?312,000 78,000
4 ?348,000 58,000

Answer & Explanation Solved by verified expert

3.6 Ratings (296 Votes)

Taking in pairs we can find the incremental cash flows betweenthe projects and thereafter determining the incremental IRRIncremental Cash flow Difference in cash flows of projectFor IRR using the following formula or the excel inbuiltfunction of See Answer

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Machine	First Cost, $	Annual Revenue, $
1	?105,000	21,000
2	?123,000	41,000
3	?312,000	78,000
4	?348,000	58,000