Parrish Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the companys

Question:

Parrish Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company’s cash outflow for operating expenses by $960,000 per year. The cost of the equipment is $4,639,897.92. Medina expects it to have a 10-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.

Required

a. Calculate the internal rate of return of the investment opportunity.

b. Indicate whether the investment opportunity should be accepted.

Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...