Newport Corp. is considering the purchase of a new piece of equipment. The cost
ID: 2595382 • 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 $212,000. The equipment will have an initial cost of $957,000 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? 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.)
a. $980,055
b. $23,055
c. $957,000
d. $319,000
Explanation / Answer
Net present value = (212000*4.6229)-957000= 23055 Option B is correct