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 $84,753 and will save the company $15,000 in direct labor costs. It is expected to last 10 years.
Required
a. Calculate the internal rate of return on the weaving machine.
b. If Harrison uses a 14% hurdle rate, should the company invest in the machine? Why or why not?
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