Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Question 5 0.5 pts From E16-6, what is the net present value of purchasing the equipment? E16-6 Aaron Heath is seeking part-time employment while he
Question 5 0.5 pts From E16-6, what is the net present value of purchasing the equipment? E16-6 Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services compar that will offer tutorial services over the internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the interr assistance. Thereafter, he expects demand to stabilize. The following table presents the expected cash flows: alcalate net present first Year of Cash Cash Operation Inflow Outflow 2019 $25,000 $12,000 2020 29,000 16,000 2021 32,000 18,000 2022 32,000 18.000 In addition to these cash flows, Aaron expects to pay $25,000 for the equipment. He also expects to pay $4,000 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $4,000 salvage value and a four-year useful life. Aaron desires to earn a rate of return of 8 percent. Required Round your computations to two decimal places. a. We can't use the annuity table to calculate the present value of the yearly expected cash flows associated with running the business. Why? b. Calculate the net present value of the investment opportunity. Present value Present value of yearly net cash inflows Present value of overhaul and update Present value of salvage value Cost of equipment present outflow Net present value
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