Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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 15Step 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