question archive University of Texas, Rio Grande ValleyACCT 6305 Community Health Center (CHC) is considering spending $50,000 on a blood analyzer
University of Texas, Rio Grande ValleyACCT 6305 Community Health Center (CHC) is considering spending $50,000 on a blood analyzer
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University of Texas, Rio Grande ValleyACCT 6305
Community Health Center (CHC) is considering spending $50,000 on a blood analyzer. The annual cash profits from the machine will be $7,000 for each of the 7 years of its useful life. The board of directors wants to pursue this investment, because they think the $49,000 CHC will receive is close to the $50,000 cost. What is wrong with the board's logic? What is the IRR on the investment?
Is this the correct calculation for IRR?
=IRR{(-50000, 7000,7000,7000,7000,7000,7000,7000})= -1%
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Answer:
IRR = -0.50%
Or
IRR = - 1% (Rounded to nearest whole Number)
Step-by-step explanation
The calculation is shown below:
IRR = -0.50%
Or
IRR = - 1% (Rounded to nearest whole Number)
The board is ignoring the net present value (NPV) of the cash flows. The NPV Can give a negative cash flow for community health center.
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