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ABC Company is considering the purchase of a new piece of equipment costing $138,875.The equipment has a 7-year useful life and is expected to generate $24,000 in annual cost savings.ABC has a 4% required rate of return.
Required:
a.What is the internal rate of return for the equipment, rounded to nearest factor?
b.Should ABC purchase the new equipment? Why or Why not?
Net Profit Margin Ratio
An indicator of profitability, calculated as net income divided by revenue.
Total Asset Turnover
A financial gauge assessing how well a company employs its assets to create sales turnover.
Cash Dividend
A payout in cash form from a corporation's profits to the individuals holding its shares.
Stockholders' Equity
Stockholders' equity represents the ownership interest of shareholders in the assets of a corporation, after deducting liabilities.
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