X Company must decide whether to continue using its current equipment or replace
ID: 2463669 • Letter: X
Question
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,the last time I posted it, it was wrong. Only ONE try left!!!! thank you!
Explanation / Answer
Tax Rate is not given hence depreciation is not relevant.
By Trail And Error method we can find IRR/Discount rate at which NPV OF incremental Cashflow will be Zero.
IRR is 7% because at this discount rate NPV of Cashflow is Zero
Existing New Incremental Initial Outflow $16,000.00 $166,000.00 $150,000.00 Annual Operating Cost $67,150.00 $35,680.00 -$31,470.00 Salvage at year 6 $2,650.00 $2,650.00 $0.00Related Questions
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