Exercise D9-11

Harrison Hammocks is considering the purchase of a new weaving machine to prepare fabric for its hammocks. The machine under consideration costs $46,106 and will save the company $10,000 in direct labor costs. It is expected to last 14 years.

Click here to view the factor table.

(a)Calculate the internal rate of return on the weaving machine.

Internal rate of return

%

(b)If Harrison uses a 12% hurdle rate, should the company invest in the machine?