last for 8 years. It will have no salvage value at the end of its useful life. G

Question

last for 8 years. It will have no salvage value at the end of its useful life. Garrett estimates the new lathe will reduce raw materials scrap by $41,300 per of operations, needs to replace an automatic lathe on the production line. The model he is has a sales price of year. He also believes the lathe will reduce energy costs by $24,500 per year. If he purchases the new lathe, he will be able to sell the old lathe for $4,491. (a) Calculate the lathe's internal rate of return Question Attempts: 0 of 15 usedSAVE FOR LATEN SUBIT ANSWER MacBook Air ?0

Explanation / Answer

(a) YEAR PROJECTED CASH INFLOW CUMULATIVE CASH INFLOW 1 261000 261000 2 176600 437600 3 126900 564500 4 82800 647300 5 82800 730100 6 53500 783600 7 53500 837100 PAYBACK PERIOD = 3+(612800-564500)/82800 = 3.58 years = 3 years and 7 months (b) since the actual payback period is more than 3 years,the company should not make this investment

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