A company is considering the purchase of a new piece of equipment. Information r

Question

A company is considering the purchase of a new piece of equipment. Information relating to this investment is given below:

Cost

$291241

Expected useful life

8 years

Residual value at end of useful life

$25705

Increase in annual contribution margin

$48804

Assuming a weighted average cost of capital of 6%, what is the net present value of this investment?

Select one:

a. $27949

b. $11822

c. $319190

d. $-244493

Cost

$291241

Expected useful life

8 years

Residual value at end of useful life

$25705

Increase in annual contribution margin

$48804

Explanation / Answer

Present value of annual contribution margin 303063 =48804*6.209794 Present value of residual value 16128 =25705*0.627412 Less: Cost -291241 Net present value 27949 Option A is correct

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