Merton Manufacturing Company has an opportunity to purchase some technologically
ID: 2480927 • Letter: M
Question
Merton Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company’s cash outflow for operating expenses by $1,276,000 per year. The cost of the equipment is $8,683,423.72. Merton expects it to have a 11-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 15 percent and uses the straight-line method for depreciation. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Merton Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company’s cash outflow for operating expenses by $1,276,000 per year. The cost of the equipment is $8,683,423.72. Merton expects it to have a 11-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 15 percent and uses the straight-line method for depreciation. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Explanation / Answer
Answer:a
Year Cash Flows 0 -8683423.7 1 1276000 2 1276000 3 1276000 4 1276000 5 1276000 6 1276000 7 1276000 8 1276000 9 1276000 10 1276000 11 1276000 IRR 8.99%