ABC Company is considering purchasing new equipment that will cost $120,000. The equipment is expected to have
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ABC Company is considering purchasing new equipment that will cost $120,000. The equipment is expected to have a useful life of 5 years and will generate the following annual cash inflows: $30,000 in Year 1, $35,000 in Year 2, $40,000 in Year 3, $45,000 in Year 4, and $50,000 in Year 5. The company has a desired rate of return of 12%.
a) Calculate the payback period for the equipment.
b) Calculate the net present value (NPV) of the equipment purchase.
c) Based on the calculations in parts a) and b), determine whether ABC Company should purchase the equipment.
Related Book For
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett
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