K2B Co. is considering the purchase of equipment that would allow the company to
ID: 2381484 • Letter: K
Question
K2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $371,200 with a 7-year life and no salvage value. It will be depreciated on a straight-line basis. K2B Co. concludes that it must earn at least a 9% return on this investment. The company expects to sell 148,480 units of the equipment
K2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $371,200 with a 7-year life and no salvage value. It will be depreciated on a straight-line basis. K2B Co. concludes that it must earn at least a 9% return on this investment. The company expects to sell 148,480 units of the equipment's product each year. The expected annual income related to this equipment follows. (Use Table B.3) Compute the net present value of this investment. (Round "PV Factor" to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)Explanation / Answer
Initial outflow=371200 - (year 0)
inflow each year=52340+53029=105369 (for 7 year)
Present value of inflow=105369*5.0330=530322.177
PVAF(9% ,7 year)=5.0330
NPV=-371200+530322.177=159122.177
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