Question
Triple Crossing Brewing is considering installing a new cooler (equipment) in order to increase the volume and variety of beverages they can offer. The new
Triple Crossing Brewing is considering installing a new cooler (equipment) in order to increase the volume and variety of beverages they can offer. The new cooler will cost $24,000. It is expected to last 7 years but only if the cooler is overhauled (REPAIRED) at a cost of $4,000 at the end of year 4. The new cooler is expected to have a $2,000 salvage value at the end of 7 years. The new cooler is expected to generate additional revenues of $15,000 per year with an increase in expenses of $9,000 per year. Triple Crossings discount rate is 12%. What is the net present value of this investment opportunity? Should they invest in the cooler?
Hint: determine the PV of each item. Be careful if the item is an annuity (annual) or one time only event.
PV of an annuity of $1 PV of $1
| Time period | 10% | 12% | 14% |
| Time period | 10% | 12% | 14% |
| 1 | 0.909 | 0.893 | 0.877 |
| 1 | 0.909 | 0.893 | 0.877 |
| 2 | 1.736 | 1.690 | 1.647 |
| 2 | 0.826 | 0.797 | 0.769 |
| 3 | 2.487 | 2.402 | 2.322 |
| 3 | 0.751 | 0.712 | 0.675 |
| 4 | 3.170 | 3.037 | 2.914 |
| 4 | 0.683 | 0.636 | 0.592 |
| 5 | 3.791 | 3.605 | 3.433 |
| 5 | 0.621 | 0.567 | 0.519 |
| 6 | 4.355 | 4.111 | 3.889 |
| 6 | 0.564 | 0.507 | 0.456 |
| 7 | 4.868 | 4.564 | 4.288 |
| 7 | 0.513 | 0.452 | 0.400 |
| 8 | 5.335 | 4.968 | 4.639 |
| 8 | 0.467 | 0.404 | 0.351 |
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