Newport Corp. is considering the purchase of a new piece of equipment. The cost
ID: 2528261 • Letter: N
Question
Newport Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $205,000. The equipment will have an initial cost of $966,000 and have a 6 year life. There is no salvage value for the equipment. If the hurdle rate is 8%, what is the approximate net present value? Ignore income taxes. (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.)
Explanation / Answer
Net present value = Present value of cash inflow-Present value of cash outflow
= (205000*4.62288)-966000
Net present value = -18310