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You are working as the controller of Bella, Inc. and are considering buying one of the following three equipment purchases: Equipment I would require a
You are working as the controller of Bella, Inc. and are considering buying one of the following three equipment purchases: Equipment I would require a cash outlay of $7,000 per year for 8 years and would provide a cash inflow of $80,000 at the end of 8 years. (Ignore income taxes.) Equipment 2 would require an immediate cash outlay of $50,000 and would result in cash inflow of $111,000 at the end of 8 years. Equipment 3 would require cash outlays of $42,000 now and would provide a cash savings of $10,000 per year for the next 8 years. Present value of $1;n=8&i=10%0.467 Present value of an annuity of $1;n=8&i=10%-> 5.335 Required: The discount rate is 10%. Using the net present value method, calculate the NPV of each investment and determine which, if any, of the three equipment investments is acceptable. Remember that you can only choose one item to purchase. (You must show your work for each investment)
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