Allen Company's required rate of return is 12 percent. The company is considering the buy of three equipments as indicated below. Consider every equipment independently.
Required:
[A] Equipment A will cost $15,000 and have a life of eight years. Its salvage value will be $1,000 and cost savings are projected at $3,000 per year. Calculate the equipments net present value.
[B] How much would Allen Company be willing to pay for machine B if the equipment promises annual cash inflows of $6,000 per year for 10 years?
[C] Equipment C has a projected life of 12 years. Determine the equipments internal rate of return, to the nearest whole percent, if it costs $18,000 and will save $2,500 yearly in cash operating costs? Would you recommend the purchase? Explain.