Garrett Boone, Riverbed Enterprises' vice president of operations, needs to replace an a model he is considering has a sales price of $297,934 and will last for 15 years. It will hav Garrett estimates the new lathe will reduce raw materials scrap by $35,000 per year. He costs by $3,500 per year. If he purchases the new lathe, he will be able to sell the old lath Click here to view the factor table. (a) Calculate the lathe's internal rate of return. (Round answer to O decimal places, e.g. 25% Internal rate of return %

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
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Garrett Boone, Riverbed 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 $297,934 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 $35,000 per year. He also believes the lathe will reduce energy
costs by $3,500 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, e.g. 25%.)
Internal rate of return
%
(b) If Riverbed 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
Transcribed Image Text:Garrett Boone, Riverbed 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 $297,934 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 $35,000 per year. He also believes the lathe will reduce energy costs by $3,500 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, e.g. 25%.) Internal rate of return % (b) If Riverbed 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
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