Bailey, Inc., is considering buying a new gang punch that would allow it to produce circuit boards more efficiently. The punch has a first cost of $100,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Labor costs would increase $2,000 per year using the gang punch but raw material costs would decrease $12,000 per year. MARR is 5%/ yr. Solve, a. What is the internal rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on internal rate of return? c. Should Bailey buy the gang punch?
Bailey, Inc., is considering buying a new gang punch that would allow it to produce circuit boards more efficiently. The punch has a first cost of $100,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Labor costs would increase $2,000 per year using the gang punch but raw material costs would decrease $12,000 per year. MARR is 5%/ yr. Solve, a. What is the internal rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on internal rate of return? c. Should Bailey buy the gang punch?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 14P
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Bailey, Inc., is considering buying a new gang punch that would allow it to produce circuit boards more efficiently. The punch has a first cost of $100,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Labor costs would increase $2,000 per year using the gang punch but raw material costs would decrease $12,000 per year. MARR is 5%/ yr. Solve, a. What is the
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