Tu Corporation is investigating automating a process by purchasing a machine for
ID: 2455429 • Letter: T
Question
Tu Corporation is investigating automating a process by purchasing a machine for $423,000 that would have a 9 year useful life and no salvage value. By automating the process, the company would save $112,000 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding $27,000. The annual depreciation on the new machine would be $47,000.
The net present value on this investment is closes to: A. $400,000 B. $80,000 C. $91,600 D. $76,750
The internal rate of return on the investment is closest to: A. 11% B. 13% C. 15% D. 17%
Explanation / Answer
Year Cash Flow Dep 0 -423000 -423000 1 112000 47000 65000 2 112000 47000 65000 3 112000 47000 65000 4 112000 47000 65000 5 112000 47000 65000 6 112000 47000 65000 7 112000 47000 65000 8 112000 47000 65000 9 112000 47000 65000 1 27000 27000
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