Y5 2. Maggie Green just borrowed $5,000. She is planning to pay it back in 5 equal installmentsof $1,200. What is the IRR?3. Rick Grimes and Daryl Dixon are evaluating an investment in a hydraulic press for astamping operation. The initial cost of the press is $400,000 and is expected to have auseful life of 10 years. Maintenance costs will be $20,000 per year. The hydraulic presswill also increase stamping output and reduce labour; saving the company $10,000 in thefirst year, $30,000 in year 2, and $75,000 in each subsequent year. The equipment has asalvage value of $15,000. If the company's MARR is 15%, should the partners recommendthis project go ahead?4. In question 3, would the recommendation change if the yearly savings were determinedto be 25% higher?5. Winterfell Tool and Die may buy a new milling machine. The engineer has determined thefollowing data:Initial costOperating cost/yrSavings/yrUseful lifeSalvage value$15,500$7,300$11,6005 yearsNilWhat is the IRR of this investment? If Winterfell has a MARR of 8%, should this project goforward?

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What is the IRR?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 4CE: Manzer Enterprises is considering two independent investments: A new automated materials handling...

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Question

2. Maggie Green just borrowed $5,000. She is planning to pay it back in 5 equal installments
of $1,200. What is the IRR?
3. Rick Grimes and Daryl Dixon are evaluating an investment in a hydraulic press for a
stamping operation. The initial cost of the press is $400,000 and is expected to have a
useful life of 10 years. Maintenance costs will be $20,000 per year. The hydraulic press
will also increase stamping output and reduce labour; saving the company $10,000 in the
first year, $30,000 in year 2, and $75,000 in each subsequent year. The equipment has a
salvage value of $15,000. If the company's MARR is 15%, should the partners recommend
this project go ahead?
4. In question 3, would the recommendation change if the yearly savings were determined
to be 25% higher?
5. Winterfell Tool and Die may buy a new milling machine. The engineer has determined the
following data:
Initial cost
Operating cost/yr
Savings/yr
Useful life
Salvage value
$15,500
$7,300
$11,600
5 years
Nil
What is the IRR of this investment? If Winterfell has a MARR of 8%, should this project go
forward?

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