Your firm spends $800,000 per year (end of the year payment) in regular maintenance of its equipment. Due to the COVID-19 economic downturn, the firm considers forgoing these maintenance expenses for the next three years. If it does so, it expects it will need to spend $3 million in year 4 (end of the year payment) replacing failed equipment. Does the IRR rule work for this decision?, For what MARR is forgoing maintenance a good decision? a. IRR rule does not work, Positive NPW only if MARR >11.58% O b. IRR rule works, Positive NPW only if MARR> 11.58% O c. IRR rule works, Positive NPW only if MARR < 11.58% O d. IRR rule does not work, Positive NPW only if MARR < 11.58%

Your firm spends $800,000 per year (end of the year payment) in regular maintenance of its equipment. Due to the COVID-19 economic downturn, the firm considers forgoing these maintenance expenses for the next three years. If it does so, it expects it will need to spend $3 million in year 4 (end of the year payment) replacing failed equipment. Does the IRR rule work for this decision?, For what MARR is forgoing maintenance a good decision? a. IRR rule does not work, Positive NPW only if MARR >11.58% O b. IRR rule works, Positive NPW only if MARR> 11.58% O c. IRR rule works, Positive NPW only if MARR < 11.58% O d. IRR rule does not work, Positive NPW only if MARR < 11.58%

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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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

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Your firm spends $800,000 per year (end of the year payment) in regular maintenance of its equipment. Due to the COVID-19
economic downturn, the firm considers forgoing these maintenance expenses for the next three years. If it does so, it expects
it will need to spend $3 million in year 4 (end of the year payment) replacing failed equipment.
Does the IRR rule work for this decision?, For what MARR is forgoing maintenance a good decision?
a. IRR rule does not work, Positive NPW only if MARR >11.58%
O b. IRR rule works, Positive NPW only if MARR> 11.58%
O c. IRR rule works, Positive NPW only if MARR < 11.58%
O d. IRR rule does not work, Positive NPW only if MARR < 11.58%

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Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $106,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,100 per year. It would have zero salvage value at the end of its life. The project cost of capital is 11%, and its marginal tax rate is 25%. Should Chen buy the new machine? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign. NPV: $ Chen purchase the new machine.

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