Don Garlits is a landscaper. He is considering the purchase of a new commercial lawn mower, either,

Question:

Don Garlits is a landscaper. He is considering the purchase of a new commercial lawn mower, either, the Atlas or the Zippy. The minimum attractive rate of return is 8%, and the table provides all the necessary information for the two machines.

Atlas Zippy

Initial cost $6700 $16,900

Annual operation and 1500 1,200

Maintenance cost

Annual benefit 4000 4,500

Salvage value 1000 3,500

Useful life, in years 3 6

(a) Determine the rate of return on the Atlas mower (to the nearest 1%).

(b) Does the rate of return on the Zippy mower exceed the MARR?

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...