Exercise 16-9 Determining the internal rate of return LO 16-3 Merton Manufacturi
ID: 2586262 • Letter: E
Question
Exercise 16-9 Determining the internal rate of return LO 16-3
Merton Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company’s cash outflow for operating expenses by $1,280,000 per year. The cost of the equipment is $5,159,637.76. Merton expects it to have a 9-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 15 percent and uses the straight-line method for depreciation. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Merton Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company’s cash outflow for operating expenses by $1,280,000 per year. The cost of the equipment is $5,159,637.76. Merton expects it to have a 9-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 15 percent and uses the straight-line method for depreciation. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Explanation / Answer
PV factor for Internal Rate of return = 5159637.76/1280000= 4.03097 Internal Rate of return = 20% b Accepted
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.