Question
Anterior Inc. has been approached by a vendor regarding an upgrade to a key piece of equipment. The new equipment would provide operating efficiencies for
Anterior Inc. has been approached by a vendor regarding an upgrade to a key piece of equipment. The new equipment would provide operating efficiencies for both direct labour and direct materials. The new equipment would result in a total annual savings of $400,000 per year. The new piece of equipment will cost the company $2,200,000 and will be purchased at the beginning of 2021. The old equipment currently has a book value of $70,000 but Anterior estimates the fair value of the equipment to be $90,000. The new equipment has a salvage value of $145,000 after its expected useful life of 10 years. Anterior requires a 12% after-tax return on its capital investments. The new equipment purchase will require an increase in working capital of $130,000 when the equipment is purchased. This amount will be recovered by the company at the end of the 10 years. REQUIRED Calculate the Net Present Value of this project. Should the project be accepted by the company? Show all calculations.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started