2 E128 k Company, a Pkpenod on this investment? Is that good enterp December 30,

Question

2 E128 k Company, a Pkpenod on this investment? Is that good enterp December 30, 2013. Th save paper and time, as well a buying the copier over the next six years is as follows: or-profit enterprise, is contemplating the acquisition of a new copier on e copier costs $42,600, has an estimated life of six years, and is expected to s reduce repair cost, The cash Murdock expects to save as a result of 2014 2015 2016 $14,000 12,000 0,000 8,000 6,000 2017 2018 2019 4,000 What is the maximum price Murdock should pay for the copier if its hurdle rate is 15 percent? calc u- late the net present value of the new copier using a 12 percent hurdle rate . Should Murdock Company buy the copier? Why?

Explanation / Answer

12173 ( 14000x1/1.15)

Maximum price which can be paid is 42600

Company may not buy becasue their NPV is less then what is spent today

Year Expected benifit Discounted benifit 2014 14000

12173 ( 14000x1/1.15)

2015 12000 9073 (12000x1/1.15/1.15 and then ) 2016 10000 6575 2017 8000 4575 2018 6000 2983 2019 4000 1729 Total Present Value 37109 Initital Investmnet 42600

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