PLEASE ASSIST. THANK YOU :) B2B Co. is considering the purchase of equipment tha

Question

PLEASE ASSIST. THANK YOU :)

B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $374,400 with a 6-year life and no salvage value. It will be depreciated on a straight-line bass. The company expects to sell 149,760 units of the equipment's product each year. The expected annual income related to this equipment follows. If at least an 10% return on this investment must be earned, compute the net present value. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Compute the net present value of this investment.

Explanation / Answer

NPV of an investment is the difference between present value of cash flows generated by project during its life time and project's initial investment. Annual cash inflow = Net Income after tax + Depreciation (Being non-cash) = 46340+62400 108740 Initial Investment = $374400 Net present value of equipment = P.V. of annual cash inflows - Initial Investment `= (108740 x Annuity P.V. factor of 10% for 6 years) - 374400 `= (108740x 4.3553) - $37400 `= 473591.048-374400 `= 99191.048

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