DelRay Foods must purchase a new gumdrop machine. Two machines are available. Machine 7745 has a first cost of $10,000, an estimated life of 10 years, a salvage value of $1,000, and annual operating costs estimated at $0.01 per 1,000 gumdrops. Machine A37Y has a first cost of $8,000, a life of 10 years, and no salvage value. Its annual operating costs will be $300 regardless of the number of gumdrops produced. MARR is 6%/yr, and 30 million gumdrops are produced each year. Based on an internal rate of return analysis, which machine (if either) should be recommended?
DelRay Foods must purchase a new gumdrop machine. Two machines are available. Machine 7745 has a first cost of $10,000, an estimated life of 10 years, a salvage value of $1,000, and annual operating costs estimated at $0.01 per 1,000 gumdrops. Machine A37Y has a first cost of $8,000, a life of 10 years, and no salvage value. Its annual operating costs will be $300 regardless of the number of gumdrops produced. MARR is 6%/yr, and 30 million gumdrops are produced each year. Based on an internal rate of return analysis, which machine (if either) should be recommended?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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DelRay Foods must purchase a new gumdrop machine. Two machines are available. Machine 7745 has a first cost of $10,000, an estimated life of 10 years, a salvage value of $1,000, and annual operating costs estimated at $0.01 per 1,000 gumdrops. Machine A37Y has a first cost of $8,000, a life of 10 years, and no salvage value. Its annual operating costs will be $300 regardless of the number of gumdrops produced. MARR is 6%/yr, and 30 million gumdrops are produced each year. Based on an
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