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In Year 1, Chandler Company purchased equipment with an expected useful life of 5 years. The initial cost of the equipment was $85,000. Chandler's cost
In Year 1, Chandler Company purchased equipment with an expected useful life of 5 years. The initial cost of the equipment was $85,000. Chandler's cost of capital is 12%. At the time it purchased the equipment, Chandler projected the following cash inflows from use of the equipment Year 1 2 Projected Cash Inflow $ 20,000 $ 30,000 $ 35.000 $ 25,000 $ 15.000 3 4 5 At the end of Year 5. the equipment had reached the end of its useful life. Chandler determined that it had actually generated the following cash flows: Year 1 Actual Cash Inflow $ 10,000 $ 20.000 $ 30.000 2 3 4 $ 30.000 $ 30.000 5 Required: 1) What was the net present value that Chandler calculated for the equipment when the company purchased the asset? 2) Calculate the net present value that the equipment achieved, based on the actual cash inflows. 3) Comment on the pattern of actual cash inflows, compared to the cash flows that had been projected 4) Was the equipment in fact an acceptable investment, based on the cash flows actually achieved
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