Lotus Engineering is considering including two pieces of equipment, a truck and
ID: 2702255 • Letter: L
Question
Lotus Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this yeas capital budget. The projects are independent. The firms cost of capital is 12%. The after tax cash flows, including depreciation, for the truck and the pulley are as follows:
Year Truck Pulley
0 -50000 -70000
1 10000 15000
2 10000 15000
3 10000 15000
4 10000 15000
5 10000 15000
6 10000 15000
7 10000 15000
A. what is the NPV for the truck?class="apple-style-span">class="apple-style-span">
B. what is the NPV for the pulley?class="apple-style-span">
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work must be shownclass="apple-style-span">
Explanation / Answer
NPV of truck is 10000/(1.12)+10000/(1.12)^2+10000/(1.12)^3+10000/(1.12)^4+10000/(1.12)^5+10000/(1.12)^6+10000/(1.12)^7-50000
= -45637.56
NPV for pulley
=15000/(1.12)+15000/(1.12)^2+15000/(1.12)^3+15000/(1.12)^4+15000/(1.12)^5+15000/(1.12)^6+10000/(1.12)^7-70000
= -1543.65
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