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 $225,000. The equipment will have an initial cost of $932,000 and have a 6 year life. There is no salvage value for the equipment. If the hurdle rate is 10%, what is the approximate net present value? gnore 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.) 00 h iity o 3 O $932,000 O $47,942 O $979,942 O $310,667

Explanation / Answer

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

=$225000[1-(1.1)^-6]/0.1

=$225000*4.3553

=$979942.5

NPV=Present value of inflows-Present value of outflows

=$979942.5-$932000

=$47942(Approx).

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