Crofton Inc.is evaluating new machinery in its foundry.The machinery would replace existing equipment.The new machinery would cost $230,000, would last 5 years, and would have a salvage value of $28,000.The existing machinery currently has a net book value of $52,000 and could be sold for $38,000.If kept, the old machine would have a salvage value of $6,000 in 5 years' time.The new machinery is expected to lower direct labour costs by $18,000 per year.The current variable overhead rate is 120% of direct labour.Other annual cost savings are projected to be $30,000.Due to the reduction in the production cycle time, working capital requirements will decrease by $25,000 during the life of the new machine.Ignore income taxes.Required:
a.Compute the net present value of replacing the existing equipment at a 9 percent required rate of return.
b.Compute the internal rate of return.

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The Answer of Crofton Inc.is evaluating new machinery in its foundry.The machinery would replace existing equipment.The new machinery would cost $230,000, would last 5 years, and would have a salvage value of $28,000.The existing machinery currently has a net book value of $52,000 and could be sold for $38,000.If kept, the old machine would have a salvage value of $6,000 in 5 years' time.The new machinery is expected to lower direct labour costs by $18,000 per year.The current variable overhead rate is 120% of direct labour.Other annual cost savings are projected to be $30,000.Due to the reduction in the production cycle time, working capital requirements will decrease by $25,000 during the life of the new machine.Ignore income taxes.Required:
a.Compute the net present value of replacing the existing equipment at a 9 percent required rate of return.
b.Compute the internal rate of return.