A builder is considering purchasing a machine costing $90,000, which will save labour costs of $25,000 a year. The annual operating cost of the machine is $10,000. The estimated economic life of the machine is 10 years, when the salvage value is expected to be $10,000. What is the rate of return of this laboursaving device

11.47%

Explanation:

initial outlay = -$90,000

cash flows years 1 - 9 = $25,000 - $10,000 = $15,000

cash flow year 10 = $25,000 - $10,000 + $10,000 = $25,000

using a financial calculator. IRR = 11.47%

The internal rate of return (IRR) is the discount rate at which a project's NPV = 0, i.e. it is break even interest rate of a project. If the desired discount rate is higher, then the NPV will be negative, if the desired discount rate is lower, then the NPV will be positive.

income statement is prepared in order to show the profits and loss of a business. in order to prepare the income statement she should collect all the income and expenses of the product with the cost of production.