Crofton Inc

question 126

Essay

Crofton Inc. is evaluating new machinery in its foundry. The machinery would replace existing equipment. The new machinery would cost $230,000, would last 5 years, and would have a salvage value of $28,000. The existing machinery currently has a net book value of $52,000 and could be sold for $38,000. If kept, the old machine would have a salvage value of $6,000 in 5 years' time. The new machinery is expected to lower direct labour costs by $18,000 per year. The current variable overhead rate is 120% of direct labour. Annual fixed cost savings are projected to be $30,000. Due to the reduction in the production cycle time, working capital requirements will decrease by $25,000 during the life of the new machine. Ignore income taxes.
Required:
a. Compute the net present value at a 9 percent required rate of return.
b. Compute the internal rate of return.

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Definitions:

Oppositional Defiance Disorder

A behavioral disorder characterized by a persistent pattern of defiant, disobedient, and hostile behavior towards authority figures.

Conflict Theory

A sociological perspective that views social life as a competition, focusing on the struggle for power, resources, and inequality within society.

Functionalism

A theoretical perspective in sociology that views society as a complex system whose parts work together to promote solidarity and stability.

Symbolic Interactionism

A sociological perspective focusing on the role of symbols and language in human interaction and how societal meaning is constructed through these interactions.