(Present value tables are needed.) Mulheim Corporation is deciding whether to au

Question

(Present value tables are needed.) Mulheim Corporation is deciding whether to automate one phase of its production process. The equipment has a six year life and will cost $410,000. Projected net cash inflows from the equipment are as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 $ 120,000 $ 100,000 $110,000 S 100,000 95,000 $90,000 Mulheim Corporation's hurdle rate is 12%. If Mulheim Corporation decides to refurbish the equipment at a cost of $60,000 at the end of year 6, it could be used for one more year and would have a $30,000 residual value at the end of year 7. Assume the cash inflow in year 7 is $65,000. What is the NPV of just the refurbishment ( A· $46,240 OB. $12,520 OC. $15,820 O D. (S1,040)

Explanation / Answer

B. $12520 Year Cash inflow PVIF @ 12% PV of Cash inflow 6 -60000               0.5070             -30,420 7 65000               0.4520               29,380 7 30000               0.4520               13,560 NPV               12,520

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