Reference no: EM131414319
Barry, an Oklahoma Crude Company engineer who did not take Engineering Economy in his undergraduate coursework, recommended that Oklahoma Crude purchase a special tool to reduce the cost of pumping oil out of the bayous of St. Martin Parish. As a result of Barry's recommendation, Oklahoma Crude purchased the tool for $30,000 on January 1, 2005. By January 1, 2006, the tool had saved a total of $5,000 and went on line full time. After going on line full time, the tool saved Oklahoma Crude $9,000 each year for the next three years and Barry was happy. However, Barry recommended the low cost model, and it started breaking down during the early part of year five, and ended up saving only $4,000 during year five. It was scrapped as being unusable at the end of year five, and had a zero salvage value. Barry told his boss that his recommendation had been correct, as it had saved Oklahoma Crude $6,000 and that is a savings of 20%.
1. The IRR for the investment that Barry recommended is.
Enter your answer for the IRR using 2 decimal places and no % sign. For example, if you calculate an IRR as 7.53%, enter it as 7.53.
2. Using a 10% MARR, calculate the actual present worth of the purchase:
Round your answer for the PW and do not use a dollar sign ("$"), any commas (",") or a decimal point ("."). For example, if you calculate a PW of $3535.36, enter your answer as 3535
3. Using a 10% MARR, was Barry's recommendation correct?
Enter your answer as: either yes, no, or not sure
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