Garrett Boone, Bridgeport Enterprises' vice president of operations, needs to replace an automatic lathe on the production line. The model he is considering has a sales price of $233,282 and will last for 15 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 $24,000 per year. He also believes the lathe will reduce energy costs by $6,000 per year. If he purchases the new lathe, he will be able to sell the old lathe for $5,100. Click here to view the factor table. (a) Calculate the lathe's internal rate of return. (Round answer to 0 decimal places, e.g. 25%.) Internal rate of return (b) If Bridgeport Enterprises uses a 8% hurdle rate, should Garrett purchase the lathe? (c) Without doing any calculations, what do you know about the lathe's net present value? Net present value will be v less than $0 greater than $0 eTextbook and Med equal to $0
Garrett Boone, Bridgeport Enterprises' vice president of operations, needs to replace an automatic lathe on the production line. The model he is considering has a sales price of $233,282 and will last for 15 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 $24,000 per year. He also believes the lathe will reduce energy costs by $6,000 per year. If he purchases the new lathe, he will be able to sell the old lathe for $5,100. Click here to view the factor table. (a) Calculate the lathe's internal rate of return. (Round answer to 0 decimal places, e.g. 25%.) Internal rate of return (b) If Bridgeport Enterprises uses a 8% hurdle rate, should Garrett purchase the lathe? (c) Without doing any calculations, what do you know about the lathe's net present value? Net present value will be v less than $0 greater than $0 eTextbook and Med equal to $0
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Garrett Boone, Bridgeport Enterprises’ vice president of operations, needs to replace an automatic lathe on the production line. The model he is considering has a sales price of $233,282 and will last for 15 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 $24,000 per year. He also believes the lathe will reduce energy costs by $6,000 per year. If he purchases the new lathe, he will be able to sell the old lathe for $5,100.
Click here to view the factor table.
(a) Calculate the lathe’s
| Internal rate of return | enter the internal rate of return in percentages rounded to 0 decimal places | % |
Transcribed Image Text:Garrett Boone, Bridgeport Enterprises' vice president of operations, needs to replace an automatic lathe on the production line. The
model he is considering has a sales price of $233,282 and will last for 15 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 $24,000 per year. He also believes the lathe will reduce
energy costs by $6,000 per year. If he purchases the new lathe, he will be able to sell the old lathe for $5,100.
Click here to view the factor table.
(a) Calculate the lathe's internal rate of return. (Round answer to O decimal places, eg. 25%.)
Internal rate of return
%
(b) If Bridgeport Enterprises uses a 8% hurdle rate, should Garrett purchase the lathe?
(c) Without doing any calculations, what do you know about the lathe's net present value?
Net present value will be v
less than $0
greater than $0
equal to $0
eTextbook and Med
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