Question
QUESTION 7 ABC, Corporation is looking to purchase a new piece of equipment for $121,505. The equipment has a useful life of 8 years and
QUESTION 7
ABC, Corporation is looking to purchase a new piece of equipment for $121,505. The equipment has a useful life of 8 years and no expected salvage value.
The minimum desired rate of return is 10%. ABC is uncertain as to the annual net cash flows the equipment will generate.
What is the minimum annual net cash flow ABC must achieve in order to justify the purchase of this new equipment?
(Round your answer to the nearest whole dollar. Do not use $ dollar signs or commas when recording your answer.)
Present Value of $1 | |||
Periods | 10% | 12% | 14% |
5 | .621 | .567 | .519 |
8 | .467 | .404 | .351 |
10 | .386 | .322 | .270 |
Present Value of Ordinary Annuity | |||
Periods | 10% | 12% | 14% |
5 | 3.791 | 3.605 | 3.433 |
8 | 5.335 | 4.968 | 4.639 |
10 | 6.145 | 5.650 | 5.216 |
0.625 points
QUESTION 8
Sparky Company is considering the replacement of an old machine with the purchase of a new piece of production equipment that will reduce labor and maintenance costs by $45,000 per year. If Sparky purchases the new machine, the company will sell the old equipment for an estimated $20,000 salvage value. Data related to the new machine follows:
Initial Investment $300,000
Useful Life 10 years
Salvage value (new machine) $30,000
Hurdle Rate 12%
Assume all cash flows occur at the end of the year and ignore income taxes. Calculate the net present value of the investment in the new machine. (Round your answer to the nearest whole dollar. If you have a negative NPV, record your answer using () parenthesis. EXAMPLE: If your NPV is ($2,000), enter your answer as (2000).
Present Value of $1 | |||
Periods | 10% | 12% | 14% |
5 | .621 | .567 | .519 |
8 | .467 | .404 | .351 |
10 | .386 | .322 | .270 |
Present Value of Ordinary Annuity | |||
Periods | 10% | 12% | 14% |
5 | 3.791 | 3.605 | 3.433 |
8 | 5.335 | 4.968 | 4.639 |
10 | 6.145 | 5.650 | 5.216 |
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