B28 Co. is considering the purchase of equipment that would allow the company to

Question

B28 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 S382/.00 with a 10-year life and no salvage value. It wit be deprecated on a straight-line basis. The company expects to sell 152.960 units of the equipment s product each year. The expected annual income related to this equipment follows. If at least an 9% return on this investment must be earned, compute the net present value. (PV of $1. FV of S1. PVA of $1. and FVAof $1) (Use appropriate factor(s) from the tables provided.) Compute the net present value of this investment.

Explanation / Answer

B2B Co. Equipment Cost 382400 Expected life 10 Expected Return 9% Depreciation 38240 Net Income 65002 Chart Value Based on: n= 10 i= 9% Annual Net Cash Flows Present Value of Annuity Present Value of Net Cash Flows Year 1 to 10 103242 6.4176 662566 Amount to be invested 382400 Net Present Value of investment 280166

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