Grady Corp. is considering the purchase of a new piece of equipment. The equipme

Question

Grady Corp. is considering the purchase of a new piece of equipment. The equipment costs $50,700, and will have a salvage value of $5,080 after nine years. Using the new piece of equipment will increase Grady's annual cash flows by $6,040. Grady has a hurdle rate of 9%. (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.) sh flows? Round yo to 2 decima a. What is the present value of the increase in annual cash flows? (Round your answer to 2 decimal places.) b. What is the present value of the salvage value? (Round your answer to 2 decimal places.) c. What is the net present value of the equipment purchase? (Negative value should be indicated by a minus sign. Round your intermediate calculation and final answer to 2 decimal places.) d. Based on financial factors, should Grady purchase the equipment? Yes O No

Explanation / Answer

a Present value of the increase in annual cash flows =6040*5.9952= 36211.01 b Present value of the salvage value = 5080*0.4604= 2338.83 c Net present value of the equipment = (36211.01+2338.83)-50700= -12150.16 d No

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