Calculate NPV-unequal cash flows (Learning Objective 4)} Bevil Industries is deciding whether to automate one phase of

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Calculate NPV-unequal cash flows (Learning Objective 4)}

Bevil Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost \(\$ 900,000\). Projected net cash inflows are as follows:

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\section*{Requirements}
1. Compute this project's NPV using Bevil Industries's \(14 \%\) hurdle rate. Should Bevil Industries invest in the equipment? Why or why not?
2. Bevil Industries could refurbish the equipment at the end of six years for \(\$ 100,000\). The refurbished equipment could be used one more year, providing \(\$ 75,000\) of net cash inflows in Year 7. In addition, the refurbished equipment would have a \(\$ 50,000\) residual value at the end of Year 7 . Should Bevil Industries invest in the equipment and refurbish it after six years? Why or why not? (Hint: In addition to your answer to Requirement 1, discount the additional cash outflow and inflows back to the present value.)

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Financial Accounting

ISBN: 9780131492011

1st Edition

Authors: Jane L. Reimers

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