Mulheim Corporation is deciding whether to automate one phase of its production
ID: 2477655 • Letter: M
Question
Mulheim Corporation is deciding whether to automate one phase of its production process. The equipment has a 6-year life and will cost $410,000. Projected net cash inflows from the equipment are as follows.
Year 1
$120,000
Year 2
$100,000
Year 3
$110,000
Year 4
$100,000
Year 5
$95,000
Year 6
$90,000
Mulheim Corporation's hurdle rate is 12%. Assume the residual value is zero.
What is the net present value of the equipment?
Year 1
$120,000
Year 2
$100,000
Year 3
$110,000
Year 4
$100,000
Year 5
$95,000
Year 6
$90,000
Explanation / Answer
Computation of NPV
Year
CashFlow
PV Factor@ 12%
PV
0
(410,000)
1.0000
(410,000.00)
1
120,000
0.8929
107,142.86
2
100,000
0.7972
79,719.39
3
110,000
0.7118
78,295.83
4
100,000
0.6355
63,551.81
5
95,000
0.5674
53,905.55
6
90,000
0.5066
45,596.80
NPV
18,212.23
Computation of NPV
Year
CashFlow
PV Factor@ 12%
PV
0
(410,000)
1.0000
(410,000.00)
1
120,000
0.8929
107,142.86
2
100,000
0.7972
79,719.39
3
110,000
0.7118
78,295.83
4
100,000
0.6355
63,551.81
5
95,000
0.5674
53,905.55
6
90,000
0.5066
45,596.80
NPV
18,212.23
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.