Question

Grove Corp. is considering the purchase of a new piece of
equipment. The cost savings from the equipment would result in an
annual increase in net income of $200,900. The equipment will have
an initial cost of $1,200,900 and have an 8 year life. The salvage
value of the equipment is estimated to be $200,900. The hurdle rate
is 10%. Ignore income taxes. (Future Value of $1, Present Value of
$1, Future Value Annuity of $1, Present Value Annuity of $1.)
**(Use appropriate factor from the PV tables.)**

**a.** What is the accounting rate of return?
**(Round your answer to 2 decimal places.)**

**b.** What is the payback period? **(Round your
answer to one decimal place.)**

**c.** What is the net present value? **(Do not
round intermediate calculations and round your final answer to the
nearest dollar amount.)**

**d.** What would the net present value be with a 13%
hurdle rate? **(Do not round intermediate calculations and
round your final answer to the nearest dollar
amount.)**

**e.** Based on the NPV calculations, in what range
would the equipment’s internal rate of return fall? **(Round
your answer to 2 decimal places.)**

Answer #1

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Useful life
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Initial investment (for two hot air balloons)
$
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Salvage value
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