Merton Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company’s cash outflow for operating expenses by $1,289,000 per year. The cost of the equipment is $8,372,133.63. Merton expects it to have a 11-year useful life and a zero salvage value. The company has established an investment opportunity hurdle rate of 15 percent and uses the straight-line method for depreciation. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Required
a. Calculate the internal rate of return of the investment opportunity.
b. Indicate whether the investment opportunity should be accepted.
Accepted
Rejected