Production engineers of a manufacturing firm have proposed a new equipment to increase productivity of a manual gas-cutting operation. The initial investment (first cost) is 500,000 and the equipment will have a salvage value of 100,000 at the end of its expected life of 5 years. Increased productivity will yield an annual revenue of 200,000 per year. If the firm's minimum attractive rate of return is 15%, is the procurement of the new equipment economically justified? Show
Production engineers of a manufacturing firm have proposed a new equipment to increase productivity of a manual gas-cutting operation. The initial investment (first cost) is 500,000 and the equipment will have a salvage value of 100,000 at the end of its expected life of 5 years. Increased productivity will yield an annual revenue of 200,000 per year. If the firm's minimum attractive rate of return is 15%, is the procurement of the new equipment economically justified? Show
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
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ANSWERS:
PI= 1.44
ERR i%= 23.71%
PAYBACK Simple= 2.5 years and Discounted= between 3&4 years
B/C Conventional= 1.44 and Modified= 1.44
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