Garrett Boone, Flint 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 $277,335 and will last for 15 years. It will have no salvage value at the end of its unehil life. Garrett estimates the new lathe will reduce raw materials scrap by $37,000 per year. He also believes the lathe willreduce energy costs by $3,000 per year. If he purchases the new lathe, he will be able to sell the old lathe for $4,900.
Garrett Boone, Flint 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 $277,335 and will last for 15 years. It will have no salvage value at the end of its unehil life. Garrett estimates the new lathe will reduce raw materials scrap by $37,000 per year. He also believes the lathe willreduce energy costs by $3,000 per year. If he purchases the new lathe, he will be able to sell the old lathe for $4,900.
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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Transcribed Image Text:Garrett Boone, Flint 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 $277,335 and will last for 15 years. It will have no salvage value at the end of its uneful life. Garrett
estimates the new lathe will reduce raw materials scrap by $37,000 per year. He also believes the lathe will reduce energy costs by
$3,000 per year. If he purchases the new lathe, he will be able to sell the old lathe for $4,900.
Transcribed Image Text:(a) Calculate the lathe's internal rate of return. (Round answer to O decimal places, eg. 25%)
Internal rate of return
(b) If Flint Enterprises uses a 10% hurdle rate, should Garrett purchase the lathe?
Yes
(c) Without doing any calculations, what do you know about the lathe's net present value?
Net present value will be
greater than SOv
eTextbook and Media greater than S0
less than S0
equal to 50
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