Tech Engineering Company Is Considering the Purchase of a New

Multiple Choice

Tech Engineering Company is considering the purchase of a new machine to replace an existing one.The old machine was purchased 5 years ago at a cost of R20,000, and it is being depreciated on a straight line basis to a zero salvage value over a 10-year life.The current market value of the old machine is R14,000.The new machine, which falls into the MACRS 5-year class, has an estimated life of 5 years, it costs R30,000, and Tech plans to sell the machine at the end of the 5th year for R1,000.The new machine is expected to generate before-tax cash savings of R3,000 per year.The company's tax rate is 40 percent.What is the IRR of the proposed project?

A) 4.1%
B) 2.2%
C) 0.0%
D) -1.5%
E) -3.3%