1)
The plant manager of Shenzhen Electronics Company is considering
the purchase of new automated assembly equipment. The new equipment will cost
$1,400,000. The manager believes that the new investment will result in direct
labor savings of $350,000 per year for 10 years.
|
Present Value of an |
|||||
|
Year |
6% |
10% |
12% |
15% |
20% |
|
1 |
0.943 |
0.909 |
0.893 |
0.870 |
0.833 |
|
2 |
1.833 |
1.736 |
1.690 |
1.626 |
1.528 |
|
3 |
2.673 |
2.487 |
2.402 |
2.283 |
2.106 |
|
4 |
3.465 |
3.170 |
3.037 |
2.855 |
2.589 |
|
5 |
4.212 |
3.791 |
3.605 |
3.353 |
2.991 |
|
6 |
4.917 |
4.355 |
4.111 |
3.785 |
3.326 |
|
7 |
5.582 |
4.868 |
4.564 |
4.160 |
3.605 |
|
8 |
6.210 |
5.335 |
4.968 |
4.487 |
3.837 |
|
9 |
6.802 |
5.759 |
5.328 |
4.772 |
4.031 |
|
10 |
7.360 |
6.145 |
5.650 |
5.019 |
4.192 |
b. What is
the net present value, assuming a 10% rate of return? Use the table provided
above. Round to the nearest whole dollar.
|
Net present value |
$ |
2) Internal Rate of Return Method
The internal rate of return method is used by Testerman
Construction Co. in analyzing a capital expenditure proposal that involves an
investment of $113,550 and annual net cash flows of $30,000 for each of the six
years of its useful life.
|
Present Value of an Annuity of $1 at Compound |
|||||
|
Year |
6% |
10% |
12% |
15% |
20% |
|
1 |
0.943 |
0.909 |
0.893 |
0.870 |
0.833 |
|
2 |
1.833 |
1.736 |
1.690 |
1.626 |
1.528 |
|
3 |
2.673 |
2.487 |
2.402 |
2.283 |
2.106 |
|
4 |
3.465 |
3.170 |
3.037 |
2.855 |
2.589 |
|
5 |
4.212 |
3.791 |
3.605 |
3.352 |
2.991 |
|
6 |
4.917 |
4.355 |
4.111 |
3.784 |
3.326 |
|
7 |
5.582 |
4.868 |
4.564 |
4.160 |
3.605 |
|
8 |
6.210 |
5.335 |
4.968 |
4.487 |
3.837 |
|
9 |
6.802 |
5.759 |
5.328 |
4.772 |
4.031 |
|
10 |
7.360 |
6.145 |
5.650 |
5.019 |
4.192 |
a. Determine a present value factor for
an annuity of $1, which can be used in determining the internal rate
of return. If required, round your answer to three decimal places.
b. Using the factor determined in part (a) and
the present value of an annuity of $1 table above, determine the internal rate
of return for the proposal.
%
