Garrett Boone, Grouper Enterprises’ vice president of operations, needs to replace an automatic lathe on the production line. The model he is considering has a sales price of $255,530 and will last for 7 years. It will have no salvage value at the end of its useful life. Garrett estimates the new lathe will reduce raw materials scrap by $38,900 per year. He also believes the lathe will reduce energy costs by $26,750 per year. If he purchases the new lathe, he will be able to sell the old lathe for $5,305.Click here to view the factor table.(a) Calculate the lathe’s internal rate of return. Internal rate of return $ % (b) If Grouper Enterprises uses a 13% hurdle rate, should Garrett purchase the lathe? YesNo Click if you would like to Show Work for this question: Open Show Work
Garrett Boone, Grouper Enterprises’ vice president of operations, needs to replace an automatic lathe on the production line. The model he is considering has a sales price of $255,530 and will last for 7 years. It will have no salvage value at the end of its useful life. Garrett estimates the new lathe will reduce raw materials scrap by $38,900 per year. He also believes the lathe will reduce energy costs by $26,750 per year. If he purchases the new lathe, he will be able to sell the old lathe for $5,305.Click here to view the factor table.(a) Calculate the lathe’s internal rate of return. Internal rate of return $ % (b) If Grouper Enterprises uses a 13% hurdle rate, should Garrett purchase the lathe? YesNo Click if you would like to Show Work for this question: Open Show Work
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 14P
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Garrett Boone, Grouper Enterprises’ vice president of operations, needs to replace an automatic lathe on the production line. The model he is considering has a sales price of $255,530 and will last for 7 years. It will have no salvage value at the end of its useful life. Garrett estimates the new lathe will reduce raw materials scrap by $38,900 per year. He also believes the lathe will reduce energy costs by $26,750 per year. If he purchases the new lathe, he will be able to sell the old lathe for $5,305.
Click here to view the factor table.
(a) Calculate the lathe’sinternal rate of return .
(b) If Grouper Enterprises uses a 13% hurdle rate, should Garrett purchase the lathe?
Click here to view the factor table.
(a) Calculate the lathe’s
| Internal rate of return | $
|
% |
(b) If Grouper Enterprises uses a 13% hurdle rate, should Garrett purchase the lathe?
YesNo
| Click if you would like to Show Work for this question: |
Open Show Work
|
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