Response to the following :
Net present ratio and IRR
Use the information presented for Lakeside, Inc., in Mini-Exercise 1 and your calculation of the net present value of the new production equipment.
Required: Calculate the present value ratio of the new production equipment, and comment on the internal rate of return of this investment relative to the cost of capital.
Exercise 1:
Net present value Lakeside, Inc., is considering replacing old production equipment with state-of-the-art technology that will allow production cost savings of $10,000 per month. The new equipment will have a five-year life and cost $450,000, with an estimated salvage value of $30,000. Lakeside's cost of capital is 10%.
Required: Calculate the net present value of the new production equipment.