Edge, Inc, is considering the purchase of new test equipment. The equipment will

Question

Edge, Inc, is considering the purchase of new test equipment. The equipment will cost $500,000 and is ast for 8 years and the support engineer has the following information concerning the savings and expected to l sa Ivage value estimates and project probabili ties. Determine the NPW if MARR is 6%. P-0.05 P0.20 P0.25 P-0.50 Saving per year $105,000 65,000 $90,000 $82,000 Salvage Value 75,000 40,000 65,000 55,000 Explain in detail your setup, Formula, Calculation. and recommendation

Explanation / Answer

Year 0 1 2 3 4 5 6 7 8 NPW Initial cost (D)        -5,00,000 Salvage ( E )      55,500 Annual Saving(F)                     81,750         81,750        81,750        81,750      81,750      81,750      81,750      81,750 FCF( G= (D+E+F))        -5,00,000                     81,750         81,750        81,750        81,750      81,750      81,750      81,750 1,37,250 Disc. Fact(H)=1/(1+.06)^n 1                     0.9434         0.8900        0.8396        0.7921      0.7473      0.7050      0.6651      0.6274 Disc FCF (G*H)        -5,00,000                     77,123         72,757        68,639        64,754      61,088      57,631      54,368      86,112      42,472 Since NPW >0, so project is acceptable Working Note: A B A*B C A*C Prob. Saving Expected Salvage Expected                  0.05                 1,05,000           5,250        75,000           3,750                  0.20                     65,000         13,000        40,000           8,000                  0.25                     90,000         22,500        65,000        16,250                  0.50                     82,000         41,000        55,000        27,500 Expected saving         81,750        55,500

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