Wilson Corp. is considering the purchase of a new piece of equipment. The cost s

Question

Wilson Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $57,000. The equipment will have an initial cost of $611,000 and have an 8 year life. The salvage value of the equipment is estimated to be $43,000. If the hurdle rate is 12%, what is the approximate net present value? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor from the PV tables. Round your final answer to the nearest dollar amount.)

a Less than zero

b $568,000

c $43,000

d $42,221

Explanation / Answer

Net annual cash flows = 57000+(611000-43000)/8= $128000 Present value of net annual cash flows 635853 =128000*4.9676 Present value of Salvage value 17368 =43000*0.4039 Less: Investment -611000 Net present value 42221 Option D is correct

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.