manufacturing equipment has a 6-year life, cost=$900,000. projected net cash inf
ID: 2349683 • Letter: M
Question
manufacturing equipment has a 6-year life, cost=$900,000. projected net cash inflows:year
1 $264,000
2 $251,000
3 $228,000
4 $213,000
5 $202,000
6 $176,000
compute this project's NVP using the industry's 14% hurdle rate. should the industry invest in the equipment?
the industry could refurbish the equipment at the end of the 6 years for $106,000. the refurbished equipment can be used 1 more year, providing $78,000 of net cash inflows in year 7. the refurbished equipment would have a $52,000 residual value at the end of year 7.
should the industry invest in the equipment and refurbishing it after 6 years?
Explanation / Answer
NPV=
-900,000
+264,000/1.14
+251,000/1.14^2
+228,000/1.14^3
+213,000/1.14^4
+202,000/1.14^5
+176,000/1.14^6
-10,182
NPV with refurbishment:
-10,182
-106,000/1.14^6
+78,000/1.14^7
+52,000/1.14^7
-1,736
The answers are "No" and "No."
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.