A company is considering the purchase of new equipment for $81,000. The projecte
ID: 2572008 • Letter: A
Question
A company is considering the purchase of new equipment for $81,000. The projected annual net cash flows are $32,200. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 10% return on investment. The present value of an annuity of 1 for various periods follows:
$27,000
A company is considering the purchase of new equipment for $81,000. The projected annual net cash flows are $32,200. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 10% return on investment. The present value of an annuity of 1 for various periods follows:
Explanation / Answer
Present value of inflows=$32200*Present value of annuity factor(10%,3)
=$32200*2.4869
=$80078.18
NPV=Present value of inflows-Present value of outflows
=$80078.18-$81000
=($921.82)(Negative).
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