Question

XYZ Company is considering the purchase of new equipment that will cost $130,000. The equipment will save the company $38,000 per year in cash operating costs. The equipment has an estimated useful life of five years and a zero expected salvage value. The company's cost of capital is 10%.

**Required:**

1) Ignoring income taxes, compute the net present value and internal rate of return. Round net present value to the nearest dollar and round internal rate of return to the nearest whole percent.

2) Should the equipment be purchased? Why or why not?

Answer #1

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