A fast-food establishment is thinking of buying a new cooking grill and refrigeration unit. The cost of
Question:
A fast-food establishment is thinking of buying a new cooking grill and refrigeration unit. The cost of these new machines is $\$ 12,500$ and $\$ 9,000$, respectively. The installation costs of the new equipment will run about $\$ 800$. It is estimated that 10 percent more customers can be served with the new equipment, which would mean an additional annual net cash flow of approximately $\$ 4,500$. The salvage value of the old grill and refrigeration unit is estimated to be $\$ 1,000$.
The firm's cost of capital is 12 percent. The equipment should last 10 years, at a minimum Using the net present value method, should the company purchase the new equipment? (Ignore income tax effects.)
Step by Step Answer:
Survey Of Accounting
ISBN: 9780538846172
1st Edition
Authors: James D. Stice, W. Steve Albrecht, Earl Kay Stice, K. Fred Skousen