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The Johnson Research Organization, a nonprofit organization that does not pay taxes, is considering buying laboratory equipment with an estimated life of seven years so

The Johnson Research Organization, a nonprofit organization that does not pay taxes, is considering buying laboratory equipment with an estimated life of seven years so it will not have to use outsiders' laboratories for certain types of work. The following are all of the cash flows affected by the decision: Use Exhibit A.8.

Investment (outflow at time 0) $ 5,300,000
Periodic operating cash flows:
Annual cash savings because outside laboratories are not used 1,450,000
Additional cash outflow for people and supplies to operate the equipment 250,000
Salvage value after seven years, which is the estimated life of this project 450,000
Discount rate 14 %

Required:

Calculate the net present value of this decision. (Round PV factor to 3 decimal places.)

Should the organization buy the equipment?

multiple choice

  • Yes

  • No

EXHIBIT A.8

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Exhibit A.8 Present Value of $1 Year 59 6% 185 20% 1 2 3 4 5 89 10% 12% 14% 16% 0.952 0.943 0.926 0.909 0.893 0.877 0.870 0.862 0.847 0.833 0.907 0.890 0.857 0.826 0.797 0.769 0.756 0.743 0.718 0.694 0.864 0.840 0.794 0.751 0.712 0.675 0.658 0.641 0.609 0.579 0.823 0.792 0.735 0.683 0.636 0.592 0.572 0.552 0.516 0.482 0.784 0.747 0.681 0.621 0.567 0.519 0.497 0.476 0.437 0.402 0.746 0.705 0.630 0.564 0.507 0.456 0.432 0.410 0.370 0.335 0.711 0.665 0.583 0.513 0.452 0.400 0.376 0.354 0.314 0.279 0.677 0.627 0.540 0.467 0.404 0.351 0.327 0.305 0.266 0.233 0.645 0.592 0.500 0.424 0.361 0.308 0.284 0.263 0.225 0.194 0.614 0.558 0.463 0.386 0.322 0.270 0.247 0.227 0.191 0.162 0.585 0.527 0.429 0.350 0.287 0.237 0.215 0.195 0.162 0.135 6 7 8 9 10 11 12 0.557 0.497 0.397 0.319 0.257 0.208 0.187 0.168 0.137 0.112 13 0.530 0.469 0.368 0.290 0.229 0.182 0.163 0.145 0.116 0.093 14 0.505 0.442 0.340 0.263 0.205 0.160 0.141 0.125 0.099 0.078 15 0.481 0.417 0.315 0.239 0.183 0.140 0.123 0.108 0.084 0.065 Year 225 24% 25% 26% 28% 30% 34% 355 40% 1 0.820 0.806 0.800 0.794 0.781 0.769 0.758 0.746 0.741 0.714 2 3 4 5 6 7 8 0.672 0.650 0.640 0.630 0.610 0.592 0.574 0.557 0.549 0.510 0.551 0.524 0.512 0.500 0.477 0.455 0.435 0.416 0.406 0.364 0.451 0.423 0.410 0.397 0.373 0.350 0.329 0.310 0.301 0.260 0.370 0.341 0.328 0.315 0.291 0.269 0.250 0.231 0.223 0.186 0.303 0.275 0.262 0.250 0.227 0.207 0.189 0.173 0.165 0.133 0.249 0.222 0.210 0.198 0.178 0.159 0.143 0.129 0.122 0.095 0.204 0.179 0.168 0.157 0.139 0.123 0.108 0.096 0.091 0.068 0.167 0.144 0.134 0.125 0.108 0.094 0.082 0.072 0.067 0.048 0.137 0.116 0.107 0.099 0.085 0.073 0.062 0.054 0.050 0.035 0.112 0.094 0.086 0.079 0.066 0.056 0.047 0.040 0.037 0.025 0.092 0.076 0.069 0.062 0.052 0.043 0.036 0.030 0.027 0.018 0.075 0.061 0.055 0.050 0.000 0.033 0.027 0.022 0.020 0.013 0.062 0.049 0.014 0.039 0.032 0.025 0.021 0.017 0.015 0.009 0.051 0.040 0.035 0.031 0.025 0.020 0.016 0.012 0.011 0.006 9 10 12 13 15 Exhibit A.8 Present Value of $1 Year 59 6% 185 20% 1 2 3 4 5 89 10% 12% 14% 16% 0.952 0.943 0.926 0.909 0.893 0.877 0.870 0.862 0.847 0.833 0.907 0.890 0.857 0.826 0.797 0.769 0.756 0.743 0.718 0.694 0.864 0.840 0.794 0.751 0.712 0.675 0.658 0.641 0.609 0.579 0.823 0.792 0.735 0.683 0.636 0.592 0.572 0.552 0.516 0.482 0.784 0.747 0.681 0.621 0.567 0.519 0.497 0.476 0.437 0.402 0.746 0.705 0.630 0.564 0.507 0.456 0.432 0.410 0.370 0.335 0.711 0.665 0.583 0.513 0.452 0.400 0.376 0.354 0.314 0.279 0.677 0.627 0.540 0.467 0.404 0.351 0.327 0.305 0.266 0.233 0.645 0.592 0.500 0.424 0.361 0.308 0.284 0.263 0.225 0.194 0.614 0.558 0.463 0.386 0.322 0.270 0.247 0.227 0.191 0.162 0.585 0.527 0.429 0.350 0.287 0.237 0.215 0.195 0.162 0.135 6 7 8 9 10 11 12 0.557 0.497 0.397 0.319 0.257 0.208 0.187 0.168 0.137 0.112 13 0.530 0.469 0.368 0.290 0.229 0.182 0.163 0.145 0.116 0.093 14 0.505 0.442 0.340 0.263 0.205 0.160 0.141 0.125 0.099 0.078 15 0.481 0.417 0.315 0.239 0.183 0.140 0.123 0.108 0.084 0.065 Year 225 24% 25% 26% 28% 30% 34% 355 40% 1 0.820 0.806 0.800 0.794 0.781 0.769 0.758 0.746 0.741 0.714 2 3 4 5 6 7 8 0.672 0.650 0.640 0.630 0.610 0.592 0.574 0.557 0.549 0.510 0.551 0.524 0.512 0.500 0.477 0.455 0.435 0.416 0.406 0.364 0.451 0.423 0.410 0.397 0.373 0.350 0.329 0.310 0.301 0.260 0.370 0.341 0.328 0.315 0.291 0.269 0.250 0.231 0.223 0.186 0.303 0.275 0.262 0.250 0.227 0.207 0.189 0.173 0.165 0.133 0.249 0.222 0.210 0.198 0.178 0.159 0.143 0.129 0.122 0.095 0.204 0.179 0.168 0.157 0.139 0.123 0.108 0.096 0.091 0.068 0.167 0.144 0.134 0.125 0.108 0.094 0.082 0.072 0.067 0.048 0.137 0.116 0.107 0.099 0.085 0.073 0.062 0.054 0.050 0.035 0.112 0.094 0.086 0.079 0.066 0.056 0.047 0.040 0.037 0.025 0.092 0.076 0.069 0.062 0.052 0.043 0.036 0.030 0.027 0.018 0.075 0.061 0.055 0.050 0.000 0.033 0.027 0.022 0.020 0.013 0.062 0.049 0.014 0.039 0.032 0.025 0.021 0.017 0.015 0.009 0.051 0.040 0.035 0.031 0.025 0.020 0.016 0.012 0.011 0.006 9 10 12 13 15

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