Norway Communications, Inc., is considering the purchase of a new piece of compu

Question

Norway Communications, Inc., is considering the purchase of a new piece of computerized data transmission equipment. Estimated annual net cash inflows for the new equipment are $520,000. The equipment costs $1.98 million, it has a five-year life, and it will have no residual value at the end of the five years. The company has a minimum rate of return of 8 percent. Required: a. Compute the net present value of the piece of equipment. Use the table B.3 in Appendix B on present and future values. (Omit the "$" sign in your response.) Net Present Value $ b. Should the company purchase it?

Explanation / Answer

= -1980000 + 520000/(1+.08)^1 + 520000/(1+.08)^2 + 520000/(1+.08)^3 + 520000/(1+.08)^4 + 520000/(1+.08)^5 = 96209 ( I did not have the appendix, so calculated manually) Yes, the company should purchase the machine as it offers a + NPV.

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