Newport Corp. is considering the purchase of a new piece of equipment. The cost
ID: 2535697 • 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 $208,000. The equipment will have an initial cost of $967,000 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.)
Negative $5,437
Zero
Positive $322,333
Positive $5,437
Explanation / Answer
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=$208000[1-(1.08)^-6]/0.08
=$208000*4.6229
=$961563.20
NPV=Present value of inflows-Present value of outflows
=$961563.20-$967000
=($5437)(Approx).(Negativefigure).