Problem 13.29A a-d (Part Level Submission)

Magenta Inc. is considering modernizing its production facility by investing in new equipment and selling the old equipment. The following information has been collected on this investment:

Old Equipment				New Equipment
Cost		$80,800		Cost		$38,600
Accumulated depreciation		$40,400		Estimated useful life		8 years
Remaining life		8 years		Salvage value in 8 years		$4,600
Current salvage value		$10,440		Annual cash operating costs		$30,200
Salvage value in 8 years		$0
Annual cash operating costs		$36,000

Depreciation is $10,100 per year for the old equipment. The straight-line depreciation method would be used for the new equipment over an eight-year period with salvage value of $4,600.

Calculate the annual rate of return. (Round answer to 2 decimal places, e.g. 15.25%.)

Calculate the net present value assuming a 18% rate of return

Should the company purchase the new equipment?