Use the information presented for Lakeside Inc. in Mini-Exercise 16.6 and your calculation of the net present value of the new production equipment.

Data from in Mini-Exercise 16.6

Lakeside Inc. is considering replacing old production equipment with state-of-the-art technology that will allow production cost savings of $7,500 per month. The new equipment will have a five-year life and cost $320,000, with an estimated salvage value of $20,000. Lakeside’s cost of capital is 12%.

Required:
Calculate the present value ratio of the new production equipment, and comment on the internal rate of return of this investment relative to the cost of capital.