Grove Corp

question 34

Essay

Grove 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 $200,000.The equipment will have an initial cost of $1,200,000 and have an 8 year life.The salvage value of the equipment is estimated to be $200,000.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?

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