Question
A business is considering investing in a new piece of equipment. Information about the Equipment: Life of equipment: 10 years Cost of equipment: $600,000 Equipment
A business is considering investing in a new piece of equipment. Information about the Equipment:
Life of equipment: 10 years
Cost of equipment: $600,000
Equipment salvage value (in 10 years): $ 10,000
The equipment will require major repairs in year 8 at a cost of $40,000. Cost of capital of 10%.
Information about the annual financial effect of the new equipment over the ten years:
Annual Income (all sales are cash sales): $130,000
Expenses: Annual expenses (paid by cash): $ 30,000
Other annual expenses (depreciation): $ 59,000 89,000
Annual increase in net income: $ 41,000
REQUIRED:
- Calculate the payback period
- Calculate net present value
- Identify and briefly discuss other factors to be considered.
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