Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

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.