Ikoo Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $915,000. Projected net cash inflows are as follows: Year 1: $260,000 Year 2: $254,000 Year 3: $226,000 Year 4: $212,000 Year 5: $203,000 Year 6: $178,000

Requirement 1: Compute this project's NPV using Ikoo's 16% hurdle rate. Should Ikoo invest in the equipment?

Drop down options: should or should not

Requirement 2. Ikoo could refurbish the equipment at the end of six years for $105,000. The refurbished equipment could be used one more year, providing $76,000 of net cash inflows in year 7. Additionally, the refurbished equipment would have a $51,000 residual value at the end of year 7. Should Ikoo invest in the equipment and refurbish it after six years? (Hint: In addition to your answer to Requirement 1, discount the additional cash outflow and inflows back to the present value.)

Drop down options:

1. positive or negative

2. large enough or not large enough

3.should or should not

Use the following table to calculate the net present value of the project. (Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.) Net Cash Inflow PV Factor (i = 16%) Years Present Value Year 1 Present value of each year's inflow: (n = 1) Year 2 Present value of each year's inflow: (n = 2) Year 3 Present value of each year's inflow: (n = 3) Year 4 Present value of each year's inflow: (n = 4) Year 5 Present value of each year's inflow: (n = 5) Year 6 Present value of each year's inflow: (n = 6) Total PV of cash inflows Year 0 Initial investment Net present value of the project Ikoo Industries invest in the equipment. Calculate the NPV of the refurbishment. (Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for cash outflows and for a negative net present value.) Cash PV Factor (i = (outflow)/inflow 16%) Present Value Refurbishment at the end of Year 6 (n = 6) Cash inflows in Year 7 (n = 7) Residual value (n = 7) Net present value of the refurbishment The refurbishment provides a Therefore, the refurbishment NPV. The refurbishment NPV is to overcome the original NPV of the equipment. alter Ikoo Industries' original decision regarding the equipment investment