tin, k t. I, ler .000) +X. You should get X = 46,200 uestion 3 Consider the foll

ID: 2437745 • Letter: T

Question

tin, k t. I, ler .000) +X. You should get X = 46,200 uestion 3 Consider the following facts - do not consider the impact of income taxes Initial cost of equipment Estimated life Salvage value Annual cash inflows Estimated cost of capital $45,000 5 years $5,000 $15,000 8% The net present value of the equipment is: Selected Answer: 03 [None Given) Correct Answer: b. $18.294 Response The cash flow from the equipment for the first four years equal $15.000 per year and Feedback: the salvage value of $6.000. NPV of the equipment is equal to -45,00- 15 ^s-18,294 ?1.08? ^4 +20,000/ ? 1.081 Company X invested in a piece of equipment with an initial cost of $80.000. The equipment is expect with an estimated life of 10 years and no salvage value. The company's cost of capitals 14% The p Question 4 t consiering the impact of taxes is

Explanation / Answer

N =

I =

5 Years

Cash flow

Annuity Chart

Amount

PV Factor

Present Value

Annual cash flow

Present value of annuity of $1

$15,000

3.99271

$59,891

Salvage Value

Present Value of $1

$5,000

0.68058

$3,403

Present Value of cash inflows

$63,294

Present Value of cash outflows

$45,000

Net Present Value

$18,294

The Net Present Value of the Equipment = [Present Value of the annual cash inflows + Present Value of the Salvage Value] – Initial Cost of the Equipment

= [$15,000(PVIFA 8%, 5 Years) + $5,000(PVIF 8%, 5 Years)] - $45,000

= [($15,000 x 3.99271) + ($5,000 x 0.68058)] - $45,000

= [$59,891 + $3,403] - $45,000

= $63,294 - $45,000

= $18,294

“The Net Present Value of the Equipment = $18,294”

N =

I =