The Walker Landscaping Company Can Purchase a Piece of Equipment

question 36

Essay

The Walker Landscaping Company can purchase a piece of equipment for $3,600. The asset has a two-year life,and will produce a cash flow of $600 in the first year and $4,200 in the second year. The interest rate is 15%. Calculate the project's payback assuming steady cash flows. Also calculate the project's IRR. Should the project be taken?
Check your answer by computing the project's NPV.

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Definitions:

Elasticity

A measure in economics to show how much the quantity demanded or supplied of a good responds to a change in price or other factors.

Marginal Cost

The cost incurred by producing an additional unit of a product or service.

Elasticity

A measure of how much the quantity demanded or supplied of a good responds to a change in one of its determinants, such as its price.

Marginal Cost

Marginal cost is the increase in total production cost that arises from producing one additional unit of a product or service.