X Company is planning to drop a department that has shown a loss over the past f
ID: 2463369 • Letter: X
Question
X Company is planning to drop a department that has shown a loss over the past few years. Its accountant estimates that the savings from dropping the department will be $13,200 a year for the next 7 years. The accountant also believes that the company will be able to immediately sell some equipment that was used in the department for $16,000. Assuming a discount rate of 4%, what is the net present value of dropping the department?
X Company must decide whether to continue using its current equipment or replace it with new, more efficient equipment. The following information is available for the current and new equipment:
The current and new equipment will last for 6 years. If X Company replaces the current equipment, what is the approximate internal rate of return (enter your rate as a decimal; so 1% would be .01) ____________
Current equipment Current sales value $12,000 Final sales value 3,370 Operating costs 61,740 New equipment Purchase cost $162,000 Final sales value 3,370 Operating cost savings 28,615Explanation / Answer
The current sale value of old equipment will be taken at 0 year as cash inflow @12000
Ans 2 IRR is where NPV=0 Year Cash flow Discount factor 5% Discounted Cash flow Discount factor 4.5% Discounted Cash flow Discount factor @4.54% 0 -162000 1 -162000 1 -162000 1 -162000 0 12000 1 12000 1 12000 1 12000 1 28615 0.9524 27252.38 0.9569 27382.78 0.9566 27372.3 2 28615 0.9070 25954.65 0.9157 26203.61 0.9150 26183.56 3 28615 0.8638 24718.71 0.8763 25075.23 0.8753 25046.45 4 28615 0.8227 23541.63 0.8386 23995.43 0.8373 23958.73 5 28615 0.7835 22420.6 0.8025 22962.14 0.8009 22918.24 6 31985 0.7462 23867.7 0.7679 24561.15 0.7661 24504.81 NPV -2244.33 NPV 180.3297 NPV -15.9023 Total cost saving 175060 Cost 150000 It could be discounted at 5% Ans 0.045Related Questions
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