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Safari File Edit View History Bookmarks Develop Window Help ezto.mheducation.com Grady Corp. is considering the purchase of a new piece of equipment. The equipment costs $50.600, and will have a salvage seven years. Using the new piece of equipment will increase Grady's annual cash flows by $6,050 value of $5,140 after has a hurdle rate of 13%. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity $1.) (Use appropriate factor from the PV tables.) a. What is the present value of the increase in annual cash flows? (Round your answer to 2 decimal places.) b. What is the present value of the salvage value? (Round your answer to 2 decimal places.) c. What is the net present value of the equipment purchase? (Negative value should be indicated by a minus sign. Round your intermediate calculation and final answer to 2 decimal places.) d. Based on financial factors, should Grady purchase the equipment? Yes No 8 4 6

Explanation / Answer

a) Present value of annual cash flow :

Present value of annual cash flow = 6050*4.423 = 26759.15

b) Present value of salvage value = 5140*.425 = 2184.50

c) Net present value = (present value of cash inflow-Present value of cash outflow

                              = (26759.15+2184.50)-50600

Net present value = -21656.35

d) No, Grady should not purchase the equipment

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