Problem:
Joel Hodge, CFO of Kleiser Enterprises, is evaluating an opportunity to invest in additional manufacturing equipment that will enable the company to increase its net cash inflows by $600,000 per year. The equipment costs $1,794,367.20. It is expected to have a five-year useful life and a zero salvage value. Kleiser's cost of capital is 18 percent.
Required to do:
a. Calculate the internal rate of return of the investment opportunity.
b. Indicate whether Kleiser should purchase the equipment.