YOU ARE EVALUATING THE PURCHASE OF EQUIPMENT

Data

You want to earn a minimum of

12.00%

Cost of equipment

$ 345,000

Trade in value of the equipment

$ -

How many years to earn revenue from the equipment

8 Years

Projected Annual Income Statement:

Sales

$ 245,000

This Income Statement shows what is expected to if the new equipment is purchased

Less:

Manufacturing costs

$ 140,000

Depreciation

43,125

Shipping and administrative costs

22,000

205,125

Income before income taxes

39,875

Income tax expense

10,800

Net income

$ 29,075

Required

(a)

Net annual cash flow ( 2points)

$72,200

Remember, net cash flow and net income are not the same thing.

Payback period (2 points)

4.778

years

(b)

10 Points

Time Period

Cash Flows

Discount Factor FROM TABLES APPENDIX G

Present Value

Net annual cash flow

1-8

Purchase price of equipment

0

This should be a negative value

NPV- USING tables>>>>>

(c)

10 Points

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Net Annual Cash Flow

Equipment purchase price

TOTAL

NPV

$ -

Using NPV function in Excel

(d)

IRR (3 Points)

#NUM!

This should be in % format and should be somewhere around the rate given in the data section. If it's not, then you've done something wrong!