X Company must decide whether to continue using its current equipment or replace
ID: 2463675 • 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)
Only ONE try left!! The last time I posted this, the answer was incorrect! Please help and give me the right answer! Thank you!
Explanation / Answer
Current Equipment Current sale value 16000 Final sale value 2650 New Equipment Cost 166000 old machine sale value 16000 Net cost 150000 Savings in operating cost 31470 internal rate of return 0.2098
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