Newport Corp. is considering the purchase of a new piece of equipment. The cost
ID: 2594160 • 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 $215,000. 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 9%, 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.)
$315,000
$19,468
$964,468
$945,000
Explanation / Answer
Present value of inflows=$215000*Present value of annuity factor(9%,6)
=$215000*4.48589
=$964,468(Approx)
NPV=Present value of inflows-Present value of outflows
=$964,468-$945000
=$19468(B)(Approx).