Grady Corp. is considering the purchase of a new piece of equipment. The equipme
ID: 2438094 • Letter: G
Question
Grady Corp. is considering the purchase of a new piece of equipment. The equipment costs $50,100, and will have a salvage value of $5,120 after six years. Using the new piece of equipment will increase Grady’s annual cash flows by $6,090. Grady has a hurdle rate of 10%. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor from the PV tables.)
a. What is the present value of the increase in annual cash flows? (Round your answer to 2 decimal places.)
b. What is the present value of the salvage value? (Round your answer to 2 decimal places.)
c. What is the net present value of the equipment purchase? (Negative value should be indicated by a minus sign. Round your intermediate calculation and final answer to 2 decimal places.)
d. Based on financial factors, should Grady purchase the equipment?
Explanation / Answer
Ans 1 in $ If five decimal is taken 6090*PVIFA(10%,6) 6090*4.35526 26524 If three decimal taken 6090*4.355 26522 ans 2 PV of slavage 5120*PVIF(10%,6) 5120*.56447 2890 If three decimal taken 5120*.564 2888 ans 3 NPV five decimal amt taken 26524+2890-50100 -20686.38 three decimal 26522+2888-50100 -20690.37 ans 4 No it should not be purchased As the PV table not provided I have shown calculation from upto 5 and 3 decimal If any doubt please comment
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