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new commercial lawn mower

Don Garlits is a landscaper. He is considering the purchase of a new commercial lawn mower, either, the Atlas or the Zippy. The minimum attractive rate of return is 8%, and the table provides all the necessary information for the two machines.

AtlasZippy

Initial cost $6700 $16,900

Annual operation and 1500 1,200

Maintenance cost

Annual benefit 4000 4,500

Salvage value 1000 3,500

Useful life, in years 3 6

(a) Determine the rate of return on the Atlas mower (to the nearest 1%).

(b) Does the rate of return on the Zippy mower exceed the MARR?

(c) Use incremental rate of return analysis to decide which machine to purchase.

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