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The Schroeder Corporation is considering the purchase of an system that costs $55,000, with a 5...

The Schroeder Corporation is considering the purchase of an system that costs $55,000, with a 5 year life and no salvage value. The system will generate cost savings over its life of $15,000 per year.

The company has a required rate of return of 20% on all its inverstments.

1. Compute the Internal Rate of Return of this investment.

2. Should the company make the investment and why or why not?

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Answer #1
Year Cash Flow
0 -55000
1 15000
2 15000
3 15000
4 15000
5 15000
IRR 11.32%

IRR is calculated using IRR Function in excel/Financial calculator

2. Should the company make the investment and why or why not?

No, company should not invest because IRR is less than required rate of return of 20%

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