Question: 1. A machine costs $500,000 and is expected to yield an after-tax net income of $15,000 each year. Management predicts this machine has a 10-year service life and a $100,000 salvage value, and it uses straight-line depreciation. Compute this machine's accounting rate of return.
2. A company is considering investing in a new machine that requires a cash payment of $15,982 today. The machine will generate annual cash flows of $7,000 for the next three years. What is the internal rate of return if the company buys this machine?