Co. is considering the purchase of equipment that would allow the company to add

Question

Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $371, 200 with a 5-year life and no salvage value. It will be depreciated on a straight-line basis. B2B Co. concludes that it must earn at least a 9% return on this investment. The company expect to sell 148,480 units of the equipment's product each year. The expected annual income related to this equipment follows. (PV of $1, FV os $1, PVA of $1, and FVA of $1)(Use appropriate factor(s) from the tables provided.) Compute the net present value of this investment (Round "PV Factor" to 4 decimal places. Round your intermediate calculations and final answer to the nearest amount.)

Explanation / Answer

Calculation of cash flows for each year :

Net Income -$ 37942

Add: Depreciation -$ 74240

Total cash inflow $ 112182

NPV = present value if cash inflows - present value of cash outflows

=(3.8897*112182)- 371200

=436354.3254-371200

65154.3254

Present value annuity factor for 5years @9%=(1/1.09)5 =3.8897

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