Lockheed Martin is considering purchasing a new fine pitch machine to speed up the process in manufacturing Power Control Boards (PCBs). The initial cost of the machine is $125,000 and has a useful life of 15 years. There is no salvage value for the fine pitching machine. Since manufacturing would speed up so would the manual inspection step of the process and therefore labor costs are expected to be $4,000 per year. However, adding the new machine is expected to reduce rework costs of $15,000 per year. The MARR of the company is 3%. a. Calculate the IRR (internal rate of return) of purchasing the new fine pitch machine using interpolation. You must show your work. Hint: Use the MARR as a starting point. b. Calculate the IRR using an excel function. You must turn in an excel file. You can do this in google sheets as well. Hint: Use RATE or IRR. (5 points) c. Based on your calculations in (a) and (b) and the MARR stated in the problem is this a good investment?
Lockheed Martin is considering purchasing a new fine pitch machine to speed up the process in
manufacturing Power Control Boards (PCBs). The initial cost of the machine is $125,000 and has a useful
life of 15 years. There is no salvage value for the fine pitching machine. Since manufacturing would speed
up so would the manual inspection step of the process and therefore labor costs are expected to be $4,000
per year. However, adding the new machine is expected to reduce rework costs of $15,000 per year. The
MARR of the company is 3%.
a. Calculate the IRR (
interpolation. You must show your work. Hint: Use the MARR as a starting point.
b. Calculate the IRR using an excel function. You must turn in an excel file. You can do this in
google sheets as well. Hint: Use RATE or IRR. (5 points)
c. Based on your calculations in (a) and (b) and the MARR stated in the problem is this a good
investment?
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