Hi please provide answers to all the requirements. Thanks :) Anderson Industries

Question

Hi please provide answers to all the requirements. Thanks :)

Anderson Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $920,000. Projected net cash inflows are as follows: ?(Click the icon to view the projected net cash inflows.) (Click the icon to view the present value table ) (Click the icon to view the present value annuity table.) (Click the icon to view the future value annuity table.) (Click the icon to view the future value table.) Requirements 1 Compute this project's NPV using Anderson Industries' 16% hurdle rate. Should the company invest in the equipment why or h not 2. Anderson Industries could refurbish the equipment at the end of six years for $100,000. The refurbished equipment could be used one more year, providing $76,000 of net cash inflows in Year 7. In addition, the refurbished equipment would have a $54,000 residual value at the end of Year 7. Should Anderson Industries invest in the equipment and refurbish it after six years? Why or why not? (Hint In addition to your answer to Requirement 1, discount the additional cash outflow and inflows back to the present value.)

Explanation / Answer

Solution 1:

AS NPV is negative, therefore company should not invest in equipment.

Solution 2:

As NPV is negative therefore company should not invest in equipment.

Computation of NPV - Anderson Industries (Without refurbishing) Particulars Period Amount PV Factor Present Value Cash outflows: Initial investment 0 $920,000 1 $920,000 Present value of cash outflows (A) $920,000 Cash Inflows: Year 1 1 $265,000 0.862 $228,430 Year 2 2 $253,000 0.743 $187,979 Year 3 3 $224,000 0.641 $143,584 Year 4 4 $211,000 0.552 $116,472 Year 5 5 $202,000 0.476 $96,152 Year 6 6 $173,000 0.410 $70,930 Present value of cash inflow (B) $843,547 NPV (B-A) -$76,453

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