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Flint Hammocks is considering the purchase of a new weaving machine to prepare fabric for its...

Flint Hammocks is considering the purchase of a new weaving machine to prepare fabric for its hammocks. The machine under consideration costs $83,193 and will save the company $13,200 in direct labor costs. It is expected to last 14 years. Click here to view the factor table.

(a) Calculate the internal rate of return on the weaving machine. Internal rate of return %

(b) If Flint uses a 12% hurdle rate, should the company invest in the machine?

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Answer #1

Annuity factor = 83193/13200 = 6.3025

Annuity factor that results in 6.3025 for 14 years is 13%

Thus, IRR is 13%

If hurdle rate is 12%, the company should accept the project

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