Discussion:
Don Garlits is a landscaper. He is considering the purchase of a new commercial lawn mower, either, the Atlas or the Zippy. The minimum attractive rate of return is 8%, and the table provides all the necessary information for the two machines.
AtlasZippy
Initial cost $6700 $16,900
Annual operation and 1500 1,200
Maintenance cost
Annual benefit 4000 4,500
Salvage value 1000 3,500
Useful life, in years 3 6
(a) Determine the rate of return on the Atlas mower (to the nearest 1%).
(b) Does the rate of return on the Zippy mower exceed the MARR?
(c) Use incremental rate of return analysis to decide which machine to purchase.