10.A8-2,024 BO s-2.935 GJ8-4,256 DO $6,170 ent that will cost $150,000. The equi

Question

10.A8-2,024 BO s-2.935 GJ8-4,256 DO $6,170 ent that will cost $150,000. The equipment ill cost $25,050 a year to 8 ptX Company currently buys 6,500 units of a part each year from a supplier for $8.40 each, but it is considering m part instead. In order to make the part, X Company will have to buy equipm will last for 6 years, at which time it will have zero disposal value. X Company estimates that it w make the 6,500 units What is the approximate rate of return if X Company makes the part instead of buying it from the supplier? 11. AO 0.03 BO 0.04 CO 0.05 D0 0.06 EO 0.07 FO 0.08 Present Value of $1.00 1 ·971 10.962 1 0.952 To 943 --T 0.935- T 0.926 10.917 10.909 10.901 t 842 - tu 26 10 812 -1 1707 T) 650 TO 621 - 10.593 10.567 -0.547-1-0.513 -.0.482- -0.452 t 943- 0.925 0 9 7 0.890- 0.873- - 8 7 3 0.915 0.889 5-T 63 0.822-10.784·747-·713- -0.681 7- TO 813 - T601-0.711__ 0.665- 0.623 0.583 0.636 0.888 0.683 0.659 Present Value of an Annuity of $1.00 0.935- 0.926 0.917 0.909- 10.901 3.312 3.240 3.170 3.102 206 -15033-1-4.868 | 4.712 0.971 10.962 10.952 10.94 89: 2.624-12.577-1-2.531 -t-2.487 2.444 2.402 3.037 890 3.791 3.696 3.605 4.486 4.355 4.231 4.11 23 3.630 3.546 076 463 5 4.580 4.4524.329 4.212 4.917 38 100 3.993 417 230 20 6.733 242 002 4.767 4.623 5.786 5.582 5.389 4.564 5.747 5.535 5.335 5.146 d from LON-CAPAOMSU Licensed under GNU General Public

Explanation / Answer

Option c = 0.05 is correct.

Initial Investment $150,000 Buy from outside = 6500 units x $8.40 $54,600 Manufacturing Cost $25,050 Annual savings ($54600 -$25050) $29,550 PV of Annuity = $150,000/$29550 $5.08 PV of Annuity (5%,6) 5.0761 Annual rate of Return 5.00% Using IRR function Annual rate of return = 5.00% 0 -150000 1 $29,550 2 $29,550 3 $29,550 4 $29,550 5 $29,550 6 $29,550 IRR 5.00%

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