Waterways puts much emphasis on cash flow when it plans for capital investments. The company chose its discount rate of 8% based on the rate of return it must pay its owners and creditors. Using that rate, Waterways then uses different methods to determine the best decisions for making capital outlays.This year Waterways is considering buying five new backhoes to replace the backhoes it now has. The new backhoes are faster, cost less to run, provide for more accurate trench digging, have comfort features for the operators, and have 1-year maintenance agreements to go with them. The old backhoes are working just fine, but they do require considerable maintenance. The backhoe operators are very familiar with the old backhoes and would need to learn some new skills to use the new backhoes.The following information is available to use in deciding whether to purchase the new backhoes. Old Backhoes New Backhoes Purchase cost when new $90,000 $202,784 Salvage value now $41,600 Investment in major overhaul needed in next year $55,510 Salvage value in 8 years $15,000 $90,000 Remaining life 8 years 8 years Net cash flow generated each year $30,500 $43,800 Calculate the internal rate of return factor for the new and old blackhoes. (Round answers to 5 decimal places, e.g. 5.27647.) New Backhoes Old Backhoes IRR Factor I am just looking for the Internal Rate of Return FACTOR. Just the FACTOR. Please post the formulas and how you worked out the solution to find the FACTOR. Do not use the spreadsheet way because I can not understand how you figured out the problem, thanks.
Waterways puts much emphasis on
This year Waterways is considering buying five new backhoes to replace the backhoes it now has. The new backhoes are faster, cost less to run, provide for more accurate trench digging, have comfort features for the operators, and have 1-year maintenance agreements to go with them. The old backhoes are working just fine, but they do require considerable maintenance. The backhoe operators are very familiar with the old backhoes and would need to learn some new skills to use the new backhoes.
The following information is available to use in deciding whether to purchase the new backhoes.
| Old Backhoes | New Backhoes | |||
| Purchase cost when new | $90,000 | $202,784 | ||
| Salvage value now | $41,600 | |||
| Investment in major overhaul needed in next year | $55,510 | |||
| Salvage value in 8 years | $15,000 | $90,000 | ||
| Remaining life | 8 years | 8 years | ||
| Net cash flow generated each year | $30,500 | $43,800 |
Calculate the
| New Backhoes | Old Backhoes | |||
| IRR Factor |
I am just looking for the Internal Rate of Return FACTOR. Just the FACTOR. Please post the formulas and how you worked out the solution to find the FACTOR. Do not use the spreadsheet way because I can not understand how you figured out the problem, thanks.
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