Wilde Marketing Partnership, marketing consultants, is considering a project requiring considerable expansion of its current operations. This

Question:

Wilde Marketing Partnership, marketing consultants, is considering a project requiring considerable expansion of its current operations. This will require the purchase of equipment at a cost of $600 000. The new equipment will have a 10-year life and then have no resale value. The new project would produce a net increase in cash inflows of $120 000 each year. The company has a cost of capital of 12%.

Required

A. What is the payback period for the equipment?

B. Calculate the net present value of the equipment.

C. What is the net present value index for the equipment?

D. Should the firm purchase the equipment? Why or why not?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...

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