Basic Net Present Value and Internal Rate of Return Analysis
EXERCISE 13–13 Basic Net Present Value and Internal Rate of Return Analysis [LO1, LO2]
Consider each case below independently. Ignore income taxes.
1.              Slade Company’s required rate of return is 15%. The company can purchase a new machine at a cost of $40,350. The new machine would generate cash inflows of $15,000 per year and have a four-year life with no salvage value. Compute the machine’s net present value. Is the machine an acceptable investment? Explain.
2.              Western Products Inc. is investigating purchasing a new grinding machine that has a pro- jected life of 15 years. It is estimated that the machine will save $20,000 per year in cash operating costs. What is the machine’s IRR if it costs $111,500 new?
3.              Sunset Press has just purchased a new trimming machine that cost $14,125. The machine is expected to save $2,500 per year in cash operating costs and to have a 10-year life.
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Compute the machine’s IRR. If the company’s required rate of return is 16%, did it make a wise investment? Explain.
Answers
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Posted 22 Apr 2017 05:04 PM
My Price 10.00
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