Merton Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company’s cash outflow for operating expenses by $1,280,000 per year. The cost of the equipment is $7,865,045.76. Merton expects it to have a 10-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 9 percent and uses the straight-line method for depreciation.
Round your computations to two decimal points.
a. Calculate the internal rate of return of the investment opportunity.
b. Indicate whether the investment opportunity should be accepted.