Assume that new equipment will cost $100,000 in cash and that the old machine cost $84,000 and

Question:

Assume that new equipment will cost $100,000 in cash and that the old machine cost $84,000 and can be sold now for $16,000 cash. Annual cash savings of $15,000 are expected for 10 years.

1. Compute the net present value of the replacement alternative, assuming that the minimum desired rate of return is 10 percent.

2. What will be the internal rate of return?

3. How long is the payback period on the incremental investment?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...

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