Connor company is considering the purchase of new equipment for $90,000. The exp

Question

Connor company is considering the purchase of new equipment for $90,000. The expected life of the equipment is 5 years with no residual value. The equipment is expected to earn revenues of $114,000 per year. Total expenses, including depreciation, are expected to be $90,000 per year. Connor management has set a minimum acceptable rate of return of 15%. Assume straight-line depreciation.

Calculate the net present value of the new equipment using the present value of an annuity of $1 table. Round to the nearest dollar.

Annual net cash flow: $42,000

Present value of equipment cash flows:

Less equipment costs: $90,000

Net present value of equipment:

Explanation / Answer

Net present value of equipment= 42000 PVIFA(15%,5) - 90,000

=42000*3.352 -90,000

=$50,784

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