Ignore income taxes in this problem.) Gull Inc. is considering the acquisition o
ID: 2460869 • Letter: I
Question
Ignore income taxes in this problem.) Gull Inc. is considering the acquisition of equipment that costs $480,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipment are:
Click here to view Exhibit 8B-1 to determine the appropriate discount factor(s) using tables.
If the discount rate is 18%, the net present value of the investment is closest to: (Round your final answer to the nearest dollar amount.)
$591,264
$77,157
$435,000
$136,705
Ignore income taxes in this problem.) Gull Inc. is considering the acquisition of equipment that costs $480,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipment are:
Explanation / Answer
Net Present Value of the Investment: {Net Period Cash Flow/(1+R)^T} - Initial Investment where R is the rate of return and T is the number of time periods. = [144,000/(1+.18)1]+ [194,000/(1+.18)2]+ [155,000/(1+.18)3]+ [164,000/(1+.18)4+ [154,000/(1+.18)5+ [134,000/(1+.18)6]-480,000 = [144,000/(1.18)]+ [194,000/(1.39)]+ [155,000/(1.64)]+ [164,000/(1.94)+ [154,000/(2.29)+ [134,000/(2.7)]-480,000 = 557157-480000 = $ 77,157.00