Question
Major Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in
Major Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $500,000 and have an 8 year life. The equipment has no salvage value. The hurdle rate is 8%. Ignore income taxes. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor from the PV tables.) a. What is the net present value?
b. What would the net present value be with a 12% hurdle rate? (Negative amounts should be indicated by a minus sign.) c. Based on the NPV calculations, in what range would the equipments internal rate of return fall? (Round your answer to 2 decimal places.)
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