Harrison Hammocks is considering the purchase of a new weaving machine to prepare fabric for its hammocks.
Question:
Harrison Hammocks is considering the purchase of a new weaving machine to prepare fabric for its hammocks. The machine under consideration costs $88,235 and will save the company $14,000 in direct labor costs. It is expected to last 14 years.
Required
a. Calculate the internal rate of return on the weaving machine.
b. If Harrison uses a 12% hurdle rate, should the company invest in the machine? Why or why not?
Internal Rate of ReturnInternal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment...
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