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General Motors Company (GM) is evaluating whether to replace old manufacturing equipment. The new equipment costs $600 million and will reduce annual operating costs by
General Motors Company (GM) is evaluating whether to replace old manufacturing equipment. The new equipment costs $600 million and will reduce annual operating costs by $100 million. The equipment has a useful life of 10 years and a salvage value of $50 million. The company’s cost of capital is 9%.
- Requirements:
- Calculate the annual depreciation expense using the straight-line method.
- Determine the Net Present Value (NPV).
- Calculate the Internal Rate of Return (IRR).
- Provide a recommendation based on the financial metrics.
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