Surf CorpIs Considering the Purchase of a New Piece of Equipment

question 108

Essay

Surf Corp.is considering the purchase of a new piece of equipment.The cost savings from the equipment would result in an annual increase in net income of $50,000.The equipment will have an initial cost of $600,000 and have an 8-year life.The equipment has no salvage value.The hurdle rate is 10%.Ignore income taxes.Answer the following:
a.What is the accounting rate of return?
b.What is the payback period?
c.What is the net present value?
d.What would the net present value be with a 15% hurdle rate?
e.Based on the NPV calculations,in what range would the equipment's internal rate of return fall?

---

Definitions:

Globalization Development

involves the processes that increase the connectivity and interdependence of the world's markets and businesses, influencing social, economic, and political systems.

Absolute Poverty

A state defined by the extreme lack of essential human requirements such as food, clean drinking water, hygiene services, healthcare, housing, education, and access to information.

Relative Poverty

A condition where a person lacks the minimum amount of income needed in order to maintain the average standard of living in the society in which they live.

Poor Countries

Nations characterized by a low standard of living, underdevelopment, and low income per capita, often facing challenges such as limited access to education, healthcare, and resources.