Capital project evaluation Romiss Company is evaluating a proposal to acquire several new lathes for its production
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Capital project evaluation Romiss Company is evaluating a proposal to acquire several new lathes for its production department. The cost of the equipment is $68,000. In addition, the company would have to pay a 5 percent sales tax on the purchase and spend $2,000 for freight and installation. The equipment has a useful life of 10 years and is expected to produce cost savings of $15,750 per year. There is no salvage value. Company policy is not to fund any capital project whose internal rate of return is below the company's 16 percent cost of capital.
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