Lakeside, Inc., is considering replacing old production equipment with state-of-

Question

Lakeside, Inc., is considering replacing old production equipment with state-of-the-art technology that will allow production cost savings of $10,000 per month. The new equipment will have a five-year life and cost $450,000, with an estimated salvage value of $30,000 Lakeside's cost of capital is 10%. Table 6-4 and Table 6-5 (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.) Required Calculate the net present value of the new production equipment Net present value

Explanation / Answer

Ans . Annual income from the project = $10000*12= $120,000

So present value of 5 year income = 120000*Annuity present value of 5 years@10% + Salvage value*PVFof 5th year

Present value income = $120000*3.79 + $30000*.62 = 454800 + 18600 = $473400

Present value of cost = $450000

Net present value(NPV) = Present value of inflows - Present value of outfows

NPV = $473400 - $450000 = $23400

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