Answer Happy

5. Barry, a Texas Crude Company engineer who did not take Engineering Economy while studying at Tech, recommended that Texas 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, Texas Crude purchased the tool for $250,000 on January 1, 2011. By January 1, 2012, the tool had saved a total of $50,000 and went on line full time. After going on line full time, the tool saved Texas Crude $70,000 each year for the next three years and Barry was happy. However, Barry recommended the cheap model (Barry is a tightwad), and it started breaking down during the early part of year five, and ended up by saving only $40,000 during year five. It was scrapped as being unusable at the end of year five, and had a $20,000 salvage value. Barry told his boss that his recommendation had been correct, as it had saved Texas Crude $100,000 and that is a savings of 28%. Using IRR, evaluate the effectiveness of the tool and the correctness of Barry's recommendation. Use a MARR of 16%. 10 pts a