Newport Corp. is considering the purchase of a new piece of equipment. The cost

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 $201,000. The equipment will have an initial cost of $945,000 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? lgnore 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.) riertei 8%,what itial costof$945,000 andhave al e rs Presente Annuity ors )(Use atares, Future O Zero O Positive $315,000 O Positive $15,797 O Negative $15,797

Explanation / Answer

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=$201000[1-(1.08)^-6]/0.08

$201000*4.6229

=$929202.9

NPV=Present value of inflows-Present value of outflows

=$929202.9-$945000

=($15797)(Negative)(Approx).

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