Newport Corp. is considering the purchase of a new piece of equipment. The cost
ID: 2594163 • 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 $209,000. The equipment will have an initial cost of $909,000 and have a 6 year life. There is no salvage value for the equipment. If the hurdle rate is 11%, 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.)
Positive $303,000
Zero
Positive $24,826
Negative $24,826
Explanation / Answer
Present value of inflows=$209000*Present value of annuity factor(11%,6)
=$209000*4.2305
=$884174.5(Approx)
NPV=Present value of inflows-Present value of outflows
=$884174.5-$909000
=(24826)(Negative)(D).