Garrett Boone, Farish Enterprises' vice president of operations, needs to replace an automatic lathe on the production line. The model he is considering has a sales price of $285,000 and will last for 9 years. It will have no salvage value at the end of its useful life. Garrett estimates the new lathe will reduce raw materials scrap by $40,000 per year. He also believes the lathe will reduce energy costs by $25,000 per year. If he purchases the new lathe, he will be able to sell the old lathe for $5,305.

a. Calculate the lathe's internal rate of return.
b. If Farish Enterprises uses a 15% hurdle rate, should Garrett purchase the lathe?
c. Without doing any calculations, what do you know about the lathe's net present value?

  • CreatedFebruary 21, 2014
  • Files Included
Post your question