Gerty Manufacturing Company has an opportunity to purchase some technologically

Question

Gerty Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company's cash outflow for operating expenses by $640.000 per year. The cost of the equipment is $3.932.52288 Gerty expects it to have a 10-year useful life and a zero salvage value. The company has established an investment opportunity hurdle tate of 9 percent and uses the straight-line method for depreciation. (PV oL S1 and PVA of S) (Use appropriate factorto) from the tobles provided.) Required a. Calculate the internal rate of return of the investment opportunity (Do not round intermediate calculations.) b. Indicate whether the investment opportunity should be accepted a Internal rate of return b Should the investment opportunity be accepted?

Explanation / Answer

PV factor for Internal rate of return = 3932522.88/640000= 6.14457 The PF factor 6.14457 for 10 years is closest to 10% Internal rate of return=10% b Yes the investment should be accepted

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