(Ignore income taxes in this problem.) Isomer Industrial Training Corporation is

Question

(Ignore income taxes in this problem.) Isomer Industrial Training Corporation is considering the purchase of new presentation equipment at a cost of $150,000. The equipment has an estimated useful life of 10 years with an expected salvage value of zero. The equipment is expected to generate net cash inflows of $35,000 per year in each of the 10 years. Isomer's discount rate is 16%. Isomer uses the straight-line method of depreciation for its assets.

What is the net present value of the presentation equipment?
A. $950
B. $19,155
C. $(36,500)
D. $(53,340)

Explanation / Answer

Hi,

Please find the detailed answer as follows:

NPV = -150000 + 35000/(1+.16)^1 + 35000/(1+.16)^2 + 35000/(1+.16)^3 + 35000/(1+.16)^4 + 35000/(1+.16)^5 + 35000/(1+.16)^6 + 35000/(1+.16)^7 + 35000/(1+.16)^8 + 35000/(1+.16)^9 + 35000/(1+.16)^10 = $19162 which is closest to $19155

Option B ($19155) is the correct answer.

Thanks.

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