KLS Excavating needs a new crane. It has received two proposals from suppliers. Proposal A costs $
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KLS Excavating needs a new crane. It has received two proposals from suppliers. Proposal A costs $ 900,000 and generates cost savings of $325,000 per year for 3 years, followed by savings of $200,000 for an additional 2 years. Proposal B costs $1,500,000 and generates cost savings of $400,000 for 5 years. If KLS has a discount rate of 12%, and prefers using the IRR criterion to make investment decisions, which proposal should it accept?
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Year Crane A Crane B 0 900000 1500000 1 325000 ...View the full answer
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