Equipment Purchasing The R&R construction company's purchasing organization with the approval of the CEO is to procure an excavator for their projects rather than outsourcing them

Equipment Purchasing

The R&R construction company's purchasing organization with the approval of the CEO is to procure an excavator for their projects rather than outsourcing them. This is a fully loaded CAT 450 loader backhoe, priced at $300,000. The estimated life of this machine is 10 years and during that period the estimated after-tax cash flows (EATCF) are given below. The investments required rate of return is 15%.

Evaluate this investment, in terms of:

1. a) Average rate of Return
2. b) Net Present Value
3. c) Profitability index