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Grey is considering the replacement of some machinery that has zero book value and a current market value of $2,800. One possible alternative is to
- Grey is considering the replacement of some machinery that has zero book value and a current market value of $2,800. One possible alternative is to invest in new machinery that costs $30,000. The new equipment has a four-year service life and an estimated salvage value of $3,500, will produce annual cash operating savings of $9,400, and will require a $2,200 overhaul in year 3. The company uses straight-line depreciation. Required:
B. Compute the internal rate of return (IRR) of Greys replacement decision. (Hurdle rate is also 8%) Should the machinery be acquired? Why or Why Not?
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