nternal Rate of Reum Cacux USngialnenunting e Pronghom Indusbries is considering

Question

nternal Rate of Reum Cacux USngialnenunting e Pronghom Indusbries is considering the purchase of new equipment costing 1552,000 to replace existing equipment that will be sold for $82,800. The new equipment is nour an adationl $41,400 in ck here to viem the factor table. places as la in factor table-ovided and round nnal answer to?decimal place, .g. sa,0,1. Enter-ati. preceding the number e.g.-59,992 or parentheses eg. (58992)) me sign (b) Do you recommend that Pronghom bestres invest the nea·0pment Click if you would like to Shoew Work for this question: Qaen Shom Question Attempts: 0 of 5 used saVE FOR LATE MacBook Pro 5 0

Explanation / Answer

Cash Cost of New Equipment 552000 Less: Cash Sale of Old Machine 82000 Net Cost to be incurred today 470000 Salvage Value of New Equipment 92000 (Recievable at Year 2 end) Calculation of Annual Incremental Cash Flows: Additional Units Produced by New Machine 13800 Net Contribution Per Unit (9-6) 3.00 Total Annual Contribution Generated 41400 Less: Additional Fixed Cost 41400 Net Incremental Benfit PA 0 Calculation of Net Present Value: Year Cash Flows Discount Factor @ 6% Present Value 0 -470000 1 -470000 1 0 0.94 0 2 92000 0.89 81880 NPV -388120 Company should reject the proposal resulting in negative NPV No is the answer

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