EMiNAR Co. has an opportunity to purchase an $86,000 piece of equipment. EMiNAR wants to determine if the equipment should be purchased using the following information: The equipment will create a positive cash flow of $18,500 per year. The equipment will have a six-year life. The equipment will have a salvage value of $5,000 at the end of its life. EMiNAR has a 10% cost of capital. Income taxes are ignored when evaluating investments.

(a.) What is the net present value of the equipment purchase? Round the answer to the nearest $1.

(b.) Determine if the internal rate of return is higher, lower or equal to EMiNAR’s cost of capital. Explain why the internal rate of return is higher, lower or equal.

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