Newport Corp is considering the purchase of a new piece of equipment. The cost s
ID: 2594982 • 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 $207,000. The equipment will have an initial cost of $991,000 and have a 6 year life. There is no salvage value for the equipment. If the hurdle rate is 7%, 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.) (Round your PV factor to 4 decimal places and final answer to the nearest dollar amount.)
positive $330,333
positive $4,335
negative $4,335
zero
Explanation / Answer
Solution: Negatibve $4,335
Machine Original cost 991000 Life 6 Estimated Cash Inflows 207000 Estimated Cash Outflows 0 Estimated net Cash inflows 207000 Discount rate 7% NPV = {Net Period Cash Flow/(1+R)^T} - Initial Investment