1 3. LaChut Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $905,000. Projected net cash inflows are as follows: (Click the icon to view the projected net cash inflows.) 2 (Click the icon to view the present value table.) (Click the icon to view the present value annuity table.) 4 (Click the icon to view the future value table.) (Click the icon to view the future value annuity table.) Read the requirements 3 5 Requirement 1. Compute this project's NPV using LaChut Industries' 14% hurdle rate. Should LaChut Industries invest in the equipment? Why or why not? Begin by computing the project's NPV (net present value). (Round your answer to the nearest whole dollar. Use parentheses or a minus sign for negative net present values.) Net present value $ LaChut Industries (1) invest in the equipment because its NPV is (2) Requirement 2. LaChut Industries could refurbish the equipment at the end of six years for $101,000. 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 $52,000 residual value at the end of Year 7. Should LaChut Industries invest in the equipment and refurbish it after six years? Why or why not? (Hint: addition to your answer to Requirement 1, discount the additional cash outflow and Inflows back to the present value.) Calculate the additional NPV provided from the refurbishment. (Round your answer to the nearest whole dollar. Use parentheses or a minus sign for negative net present values.) Additional NPV provided from refurbishment $ The refurbishment provides a (3) NPV. The refurbishment NPV is (4) to overcome the alter LaChut Industries' original decision original NPV of the equipment. Therefore, the refurbishment (5) regarding the equipment Investment. 1: Data Table Year 1 $265,000 Year 2 $252,000 Year 3 $222,000 Year 4 $210,000 $204,000 Year 5 Year 6 $175,000 2: Reference 1/4 Present Value of $1 Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 1 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 2 0.980 0.961 0.943 0.925 0.907 0.890 0.857 0.826 0.797 0.769 0.743 0.718 0.694 3 0.971 0.942 0.915 0.889 0.884 0.840 0.794 0.751 0.712 0.675 0.641 0.809 0.579 4 0.961 0.924 0.888 0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.552 0.516 0.482 5 0.951 0.908 0.863 0.822 0.784 0.747 0.681 0.621 0.567 0.519 0.476 0.437 0.402 6 0.942 0.888 0.837 0.790 0.746 0.705 0.705 0.630 0.584 0.507 0.456 0.410 0.370 0.335 7 0.933 0.871 0.813 0.760 0.711 0.665 0.583 0.513 0.452 0.400 0.354 0.314 0.279 8 0.923 0.853 0.789 0.731 0.677 0.627 0.540 0.467 0.404 0.351 0.305 0.266 0.233 9 0.914 0.837 0.766 0.703 0.645 0.592 0.500 0.424 0.361 0.308 0.263 0.225 0.194 10 0.905 0.820 0.744 0.676 0.614 0.568 0.463 0.386 0.322 0.270 0.227 0.191 0.162 11 0.896 0.804 0.722 0.650 0.585 0.527 0.527 0.429 0.350 0.287 0.237 0.195 0.162 0.135 12 0.887 0.788 0.701 0.625 0.557 0.497 0.397 0.319 0.257 0.208 0.168 0.137 0.112 13 0.879 0.773 0.681 0.601 0.530 0.469 0.368 0.290 0.229 0.182 0.145 0.116 0.093 14 0.870 0.758 0.661 0.577 0.505 0.442 0.340 0.283 0.205 0.160 0.125 0.099 0.078 15 0.861 0.743 0.642 0.555 0.481 0.417 0.315 0.239 0.183 0.140 0.108 0.084 0.065 20 0.820 0.673 0.554 0.456 0.377 0.312 0215 0.149 0.104 0.073 0.051 0.037 0.026 0.780 0.610 0.478 0.375 0.295 0.233 0.146 0.092 0.059 0.038 0.024 0.016 0.010 30 0.742 0.552 0.412 0.308 0.231 0.174 0.099 0.057 0.033 0.020 0.012 0.007 0.004 40 0.672 0.453 0.307 0.208 0.142 0.097 0.046 0.022 0.011 0.005 0.003 0.001 0.001 3: Reference Present Value of Annuity of $1 Periods 1% 1 1 0.990 2 1.970 3 2.941 4 3.902 5 4.853 2% 3% 4% 0.980 0.971 0.962 1.942 1.913 1.886 2.884 2.829 2.775 3.808 3.717 3.630 4.713 4.580 4.452 5.601 5.417 5.242 6.472 6.230 6.002 7.325 7.020 6.733 8.162 7.786 7.435 8.983 8.530 8.111 5% 0.952 1.859 2.723 3.546 4.329 6% 8% 10% 12% 14% 16% 18% 20% 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 2.673 2.577 2.487 2.402 2.322 2.246 2.174 2.106 3.465 3.312 3.170 3.037 2.914 2.798 2.690 2.589 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 4.917 4.623 4.355 4.111 3.889 3.685 3.498 3.326 5.582 5.206 4.868 4.564 4.288 4.039 3.812 3.605 6.210 5.747 5.335 4.9684.639 4.344 4.078 3.837 6.802 6.247 5.759 5.328 4.946 4.607 4.303 4.031 7.360 6.710 6.145 5,650 5.216 4.833 4.494 4.192 6 7 8 9 5.795 6.728 7-852 8.566 9.471 5.076 5.786 6.463 7.108 7.722 10 11 12 13 10.368 9.787 9.2538.760 8.306 7.887 7.139 6.495 5.938 11.255 10.575 9.954 9.385 8.863 8.384 7.536 6.814 6.194 12.134 11.348 10.635 9.986 9.394 8.853 7.904 7.1036.424 13.004 12.106 11.296 10.563 9.899 9.295 8.244 7.367 6.628 13.865 12.849 11.938 11.118 10.380 9.712 8.559 7.606 6.811 18.046 16.351 14.877 13.590 12.462 11.470 9.818 8.5147.469 22.023 19.523 17.413 15.622 14.094 12.783 10.675 9.077 7.843 25.808 22.396 19.600 17.292 15.372 13.765 11.258 9.4278.055 32.835 27.355 23.115 19.793 17.159 15.046 11.925 9.779 8.244 5.4535.029 4.656 5.660 5.197 4.793 5.842 5.342 4.910 6.002 5.468 5.008 6.142 5.575 5.575 5.092 4.327 4.439 4.533 4.611 4.675 14 15 20 25 6.623 5.929 6.873 6.097 7.0036.177 7.1066.233 5.353 4.870 5.467 4.948 5.517 4.979 5.548 4.997 30 40 4: Reference 2/4 Future Value of $1 Periods 3% 14% 1 1.030 6% 1.060 1.124 12% 1.120 1.254 2 1% 1.010 1.020 1.030 1.041 1.051 2% 1.020 1.040 1.061 1.082 1.104 1.061 1.093 4% 1.040 1.082 1.125 1.170 1.217 5% 1.050 1.103 1.158 1.216 1.276 8% 1.080 1.166 1.260 1.360 1.469 10% 1.100 1.210 1.331 1.464 1.611 16% 1.160 1.346 1.561 1.811 2.100 3 1.405 1.140 1.300 1.482 1.689 1.925 4 5 1.191 1.262 1.338 1.126 1.159 1.574 1.762 1,340 6 7 8 9 1.062 1.072 1.083 1.126 1.149 1.172 1.407 1.194 1.230 1.267 1.305 1.344 1.265 1.316 1.369 1.423 1.480 1.419 1.504 1.594 1.689 1.587 1.714 1.851 1.999 2.159 1.772 1.949 2.144 2.358 2.594 1.974 2.211 2.476 2.773 3.106 1.477 1.551 1.629 2.195 2.502 2.853 3.252 3.707 2.436 2.826 3.278 1.094 1.195 1.219 3.803 4.411 10 1.105 1.791 11 1.384 12 1.116 1.127 1.138 1.149 1.161 1.243 1.268 1.294 1.319 1.346 1.539 1.601 1.665 1.732 1.710 1.796 1.886 13 1.898 2012 2133 2.261 2397 1.426 1.469 1.513 1.558 2.332 2.518 2.720 2.937 3.172 2.853 3.138 3.452 3.797 4.177 4.226 4.818 5.492 3.479 3.896 4.363 4.887 5.474 5.117 5.936 6.886 14 6.261 7.988 1.980 2.079 15 1.801 7.138 9.266 20 25 30 1.220 1.282 1.348 1.489 1.486 1.641 1.811 2.208 1.806 2.094 2.427 3.262 2.191 2.666 3.243 4.801 2.653 3.386 4.322 7.040 3.207 4.292 5.743 4.661 6.848 10.063 21.725 6.727 10.835 17.449 45.259 9.646 17.000 29.960 93.051 13.743 26.462 50.950 188.884 19.461 40.874 85.850 378.721 40 10.286 5: Reference : 1% 14% Periods 1 2 3 4 1.000 2.010 3.030 4.060 5.101 2% 1.000 2.020 3.060 4.122 5.204 3% 1.000 2.030 3.091 4.184 5.309 % 4% 1.000 2.040 3.122 4.246 5% 1.000 2.050 3.153 4.310 5.526 Future Value of Annuity of $1 6% 6% 8% 10% 1.000 1.000 1.000 2.060 2.080 2.100 3.184 3.246 3.310 4.375 4.506 4.641 5.637 5.867 6.105 12% 1.000 2.120 3.374 4.779 6.353 1.000 2.140 3.440 4.921 6.610 16% 1.000 2.160 3.506 5.066 6.877 5 5.416 6 7 6.152 7.214 8.977 11.414 8 9 8.286 9.369 10.462 6.308 7.434 8.583 9.755 10.950 6.468 7.662 8.892 10.159 11.464 6.633 7.898 9.214 10.583 12.006 6.802 8.142 9.549 11.027 12.578 6.975 8.394 9.897 11.491 13.181 7.336 8.923 10.637 12.488 14.487 7.716 9.487 11.436 13.579 15.937 8.115 10.089 12.300 14.776 17.549 8.536 10.730 13.233 16.085 19.337 14.240 17.519 10 21.321 11 12 11.567 12.683 13.809 14.947 16.097 12.169 13.412 14.680 15.974 17.293 13 12.808 14.192 15.618 17.086 18.599 13.486 15.026 16.627 18.292 20.024 14.207 15.917 17.713 19.599 21.579 14.972 16.870 18.882 21.015 23.276 16.645 18.977 21.495 24.215 18.531 21.384 24.523 27.975 20.655 24.133 28.029 32.393 37.280 23.045 27.271 32.089 37.581 43.842 25.733 30.850 36.786 43.672 51.660 14 15 27.152 31.772 20 22.019 24.297 26.870 29.778 33.066 36.786 45.762 57.275 72.052 91.025 115.380 3/4 54.865 25 30 28.243 34.785 48.886 32.030 40.568 60.402 36.459 47.575 75.401 41.646 56.085 95.026 47.727 66.439 120.800 79.058 154.762 73.106 113.283 259.057 98,347 164.494 442.593 133.334 181.871 249.214 241.333 356.787 530.312 767.091 1,342.025 2,360.757 40 6: Requirements 1. Compute this project's NPV using LaChut Industries' 14% hurdle rate. Should the company invest in the equipment? Why or why not? 2. LaChut Industries could refurbish the equipment at the end of six years for $101,000. 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 $52,000 residual value at the end of Year 7. Should LaChut 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.) (1) O should should not () (2) O negative O positive (3) O negative ( positive (4) O large enough O not large enough (5) O should O should not 4/4