\#2 (40 points) latham Tools is considering purchasing a completely computerized production equipment to replace...
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\#2 (40 points) latham Tools is considering purchasing a completely computerized production equipment to replace its existing labor-intensive equipment. The existing equipment has a net book value of $600,000, a remaining useful life of 4 years, and a zero-salvage value at that time. If the new equipment is purchased, management would receive $75,000 trade-in allowance on the old equipment. The new equipment is expected to improve quality, be more efficient and reduce annual operating costs by $320,000 for each of the next four years. The acquisition cost of the equipment is $1,260,000. The equipment is expected to have a zero-salvage value after its 4-year expected life. The company uses the straight-line method of deprecation for all its equipment. Management has determined that the required rate of return for projects of this risk is 8% (minimum accounting return is also 8% ) and that the maximum acceptable payback period is 3 years. Analyze the project using each of the following quantitative approaches (ignore income taxes): a) Net present value b) Payback period c) Accrual accounting rate of return (use average investment) d) Internal rate of return
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