Question
Cowboy Recording Studio is considering the investment of $136,200 in a new recording equipment. It is estimated that the new equipment will generate additional cash
Cowboy Recording Studio is considering the investment of $136,200 in a new recording equipment. It is estimated that the new equipment will generate additional cash flow of $20,000 per year for each year of its 8-year life and will have a salvage value of $14,500 at the end of its life. Cowboyss financial managers estimate that the firms cost of capital is 8%. Use Table 6-4 and Table 6-5. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.) Required: a. Calculate the net present value of the investment. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) b. Calculate the present value ratio of the investment. (Round your answer to 2 decimal places.) c. What is the internal rate of return of this investment, relative to the cost of capital? The internal rate of return of this investment _______ the cost of capital of 8% according to table for period 1, 8% is .9259; period 2 .8573; period 3 .7938; period 4 0.7350; period 5 0.6806; period 6 0.6302; period 7 0.5835; period 8 0.5403
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