Question

Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $100,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Labor costs would increase $1,500 per year using the gang punch, but raw material costs would decrease $9,500 per year. MARR is 5%/year. Part a What is the internal rate of return of this investment

Answer 1

Answer: 2.37%

Step-by-step explanation:

The cost of the investment is:

= $100,000

The yearly benefit of the investment is:

= Raw material decrease - Labor increase

= 9,500 - 1,500

= $8,000

Using Excel, you can calculate IRR in the manner shown in the attachment:

IRR = 2.37%