Sensitivity analysis with interpolation Refer to the data in Exercise 13-13 for the acquisition of a punch press.

Exercise 13-13

RR 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 life of the equipment is only 6 years. c. Compute the cost of prediction error assuming no alternative investment.