Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $125,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Labor costs would increase $1,500 per year using the gang punch, but raw material costs would decrease $10,000 per year. MARR is 5%/year. Part a Your answer is incorrect. What is the internal rate of return of this investment? % Carry all interim calculations to 5 decimal places and then round your final answer to 1 decimal place. The tolerance is ±0.2.
Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $125,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Labor costs would increase $1,500 per year using the gang punch, but raw material costs would decrease $10,000 per year. MARR is 5%/year. Part a Your answer is incorrect. What is the internal rate of return of this investment? % Carry all interim calculations to 5 decimal places and then round your final answer to 1 decimal place. The tolerance is ±0.2.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![**Investment Analysis: Bailey, Inc.**
Bailey, Inc. is evaluating the purchase of a new gang punch machine to enhance circuit board production efficiency. Key details include:
- **Initial Cost:** $125,000
- **Useful Life:** 15 years
- **Salvage Value:** $0
**Cost Impacts:**
- **Labor Costs:** Increase by $1,500 annually.
- **Raw Material Costs:** Decrease by $10,000 annually.
**Minimum Attractive Rate of Return (MARR):** 5% per year.
**Part A: Internal Rate of Return (IRR) Calculation**
The task is to determine the IRR for this investment.
- **Accuracy Requirements:**
- Carry calculations to 5 decimal places.
- Round the final answer to 1 decimal place.
- Tolerance: ±0.2.
**Note:** The example involves recalculating and understanding financial impacts to ascertain the IRR and assess investment viability.
**Feedback:**
- Indicated answer is incorrect, encouraging reevaluation of the IRR calculation with the specified precision.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F28d9b483-de07-43e8-9711-dcf00568269c%2F7994001d-df70-433e-af25-718fdcde41ea%2F2naxfk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Investment Analysis: Bailey, Inc.**
Bailey, Inc. is evaluating the purchase of a new gang punch machine to enhance circuit board production efficiency. Key details include:
- **Initial Cost:** $125,000
- **Useful Life:** 15 years
- **Salvage Value:** $0
**Cost Impacts:**
- **Labor Costs:** Increase by $1,500 annually.
- **Raw Material Costs:** Decrease by $10,000 annually.
**Minimum Attractive Rate of Return (MARR):** 5% per year.
**Part A: Internal Rate of Return (IRR) Calculation**
The task is to determine the IRR for this investment.
- **Accuracy Requirements:**
- Carry calculations to 5 decimal places.
- Round the final answer to 1 decimal place.
- Tolerance: ±0.2.
**Note:** The example involves recalculating and understanding financial impacts to ascertain the IRR and assess investment viability.
**Feedback:**
- Indicated answer is incorrect, encouraging reevaluation of the IRR calculation with the specified precision.
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