A company is considering some new equipment to improve an operation on its assem
ID: 2418087 • Letter: A
Question
A company is considering some new equipment to improve an operation on its assembly line. The initial investment would be $33,000 with annual operating and maintenance expenses of $6,000. The company expects material and labor savings from this investment of $14,000 per year. Finally, they believe they could salvage the equipment for 10% of the investment cost at the end of its useful life of ten years.
Use one of the equivalent worth methods to determine whether this is an economically profitable investment if the company uses a MARR of 8%.
Determine the IRR of this investment.
Explanation / Answer
Answer 1 Calculation of NPV Year Cash Flow PV Factor = 1 / (1+r)^n PV 0 -33000 1.000 -33,000 1 8000 0.926 7,407 2 8000 0.857 6,859 3 8000 0.794 6,351 4 8000 0.735 5,880 5 8000 0.681 5,445 6 8000 0.630 5,041 7 8000 0.583 4,668 8 8000 0.540 4,322 9 8000 0.500 4,002 10 8000 0.463 3,706 Salvage Value 3300 0.463 1,529 Net present Value 22,209 r = MARR = 0.08 n = no.of years The company should consider to buy new equipment as NPV is positive
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.