The management of Trylon Farms is considering the purchase of equipment costing

Question

The management of Trylon Farms is considering the purchase of equipment costing $320,000. The equipment has a useful life of eight years, with $20,000 residual value. The use of this equipment will produce positive annual cash flow of $60,000 for eight years, as well as $20,000 from sale of the equipment at the end of the eighth year. Compute the net present value of this investment, discounted at an annual rate of 10%. (Present value of $1 due in eight years, discounted at 10%, is 0.467; present value of $1 received annually for eight years, discounted at 10%, is 5.335.)

Explanation / Answer

NPV = -320000 + 60000*r(1-r^8)/(1-r) + 20000*r^8 solve for r r = 1/(1+i) = 1/(1+0.1) = 1/1.1 plug r into first equation NPV = 9425.72 Hope this helps

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