ONLY TWO TRIES X Company must decide whether to continue using its current equip
ID: 2463418 • Letter: O
Question
ONLY TWO TRIES X Company must decide whether to continue using its current equipment or replace it with new, more efficient equipment. The following information is available for the current and new equipment:
Current equipment
Current sales value $16,000
Final sales value 2,650
Operating costs 67,150
New equipment
Purchase cost $166,000
Final sales value 2,650
Operating costs 35,680
The current and new equipment will last for 6 years. If X Company replaces the current equipment, what is the approximate internal rate of return (enter your rate as a decimal; so 1% would be .01)_________________________________________
Just need a right answer, thank you!
Explanation / Answer
Investment 166,000 - 16,000 = 150,000
operating cost savings 67,150-35,680 = 31,470
IRR = .07
The PV of an Annuity of 31,470 for 6 yrs, at 7%, is 150,000.
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