The Extra Credit Question

I need your help with a capital budgeting decision at my job. We are looking into getting floor scrubbers for several of our high-rise apartment buildings. It’s estimated that these new floor scrubbers will end up saving the company 75 man hours per year. The cost of one man hour is $25 and is expected to increase by 2% per year over the life of the project. The floor scrubbers cost $11,000 in total and are projected to have a useful life of around seven years with a with a salvage value of $1,000. Maintenance on these scrubbers is expected to cost $200 in the first year and is expected to increase by 1% per year over the life of the project. Our required rate of return at the company is 8%. What is the Net Present Value of the Project? What is the IRR? Should we accept this project?

6 points for laying the problem out correctly

3 points for answering each of my questions correctly

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