Problem 9-29

Grouper Fashions needs to replace a beltloop attacher that currently costs the company $45,000 in annual cash operating costs. This machine is of no use to another company, but it could be sold as scrap for $2,220. Managers have identified a potential replacement machine, Euromats Model HD-435. The HD-435 is priced at $47,547 and would cost Grouper Fashions $35,000 in annual cash operating costs. The machine has a useful life of 13 years, and it is not expected to have any salvage value at the end of that time. Click here to view the factor table. (a) Calculate the net present value of purchasing the HD-435, assuming Grouper Fashions uses a 16% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)

Net present value

$

(b) Calculate the internal rate of return on the HD-435.

Internal rate of return

%

(c) Calculate the payback period of the HD-435. (Round answer to 4 decimal places, e.g. 15.2515.)

Payback period

years

(d) Calculate the accounting rate of return on the HD-435. (Round answer to 2 decimal places, e.g. 11.25%.)

Accounting rate of return

%

(e) Should Grouper Fashions purchase the HD-435?