$101,818; accept proposal because NPV is positive $78,152; accept proposal becau

Question

$101,818; accept proposal because NPV is positive
       $78,152; accept proposal because NPV is positive
       <$52,908>; reject proposal because NPV is negative
       $338,482; reject proposal because NPV is positive

8. Royce Company is considering the purchase of some new equipment that will cost the company $180000. The equipment is estimated to have a 3 year life and no savage value. The equipment is expected to generate the cash inflows described below over the life of the equipment. Royce's cost of capital is 10% Cash inflows in year 1 $110000 Cash inflows in year 2 $105000 Cash inflows in year 3 $95000 The NPV of the investment in the equipment is:

Explanation / Answer

$78,152; accept proposal because NPV is positive

Royce Company NPV Calculation Year 0 Year 1 Year 2 Year 3 Initial Investment                 (180,000) Cash Inflows                       110,000              105,000                           95,000 Discount Factor @10%                                1                         0.9091                0.8264                           0.7513 PV of Cash Flows                 (180,000)                       100,000                86,777                           71,375 NPV = $                 78,152 The NPV of the investment in equipment is

$78,152; accept proposal because NPV is positive

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