Show me step by step on how to solve this problem in Excel, thanks.
Carlisle Company has been cited and must invest in equipment to reduce stack emissions or face EPA fines of $18,500 per year. An emission reduction filter will cost $75,000 and have an expected life of 5 years. Carlisle’s MARR is 10%/yr.
a. What is the internal rate of return for this investment?
b. What is the decision rule for judging the attractiveness of investments based on the internal rate of return?
c. Is the filter economically justified?
We could solve this problem either by using IRR function or RATE function in Excel
By making an investment in the filter there are potential savings each year in avoidable fines
Using Excel
| investment | 75000 |
| savings per year | 18500 |
| No. Of years | 5 |
| IRR | 7.42% |
Decision Rule: IRR > MARR for investment to be economically justifiable
As IRR is lower than MARR, this investment is not justifiable
Showing formula in Excel
| investment | 75000 |
| savings per year | 18500 |
| No. Of years | 5 |
| IRR | =RATE(O87,O86,-O85) |
Show me step by step on how to solve this problem in Excel, thanks. Carlisle Company...