IRR and sensitivity analysis Qubex Company is evaluating a proposal to acquire a new high-speed punch press requested by one of its shop supervisors. The cost of the punch press is $22,616 including freight and installation. The machine has a 7-year life and is capable of speeding up production sufficiently to save $5,600 per year. It has no salvage value. The supervi- sor requesting the punch press has been informed that the company cannot fund any investment whose internal rate of return is less than 15 percent.

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REQUIRED a. Compute the IRR on the new equipment and determine if it should be acquired. b. Compute the sensitivity of prediction error if the actual cash savings are only $5,270 per year. c. Find the cost of prediction error if the actual cash savings are only $5,270 and there is an alternative investment with the same cost and an annual return of $3,400.