A company is considering an investment in an item of equipment costing $150,000. Contribution per unit is expected to be $4 and sales are expected to be: Units 20,000 40,000 60,000 20,000 Year 1 2 3 4 Fixed costs are expected to be $50,000 at today's price levels and the equipment can be disposed of in year 4 for $10,000 at today's price levels. The inflation rate is expected to be 6% and the money cost of capital is 15%. Required Calculate the NPV of the project: (a) using money cash flows and the money cost of capital (b) using the real value of cash flows and the real cost of capital

A company is considering an investment in an item of equipment costing $150,000. Contribution per unit is expected to be $4 and sales are expected to be: Units 20,000 40,000 60,000 20,000 Year 1 2 3 4 Fixed costs are expected to be $50,000 at today's price levels and the equipment can be disposed of in year 4 for $10,000 at today's price levels. The inflation rate is expected to be 6% and the money cost of capital is 15%. Required Calculate the NPV of the project: (a) using money cash flows and the money cost of capital (b) using the real value of cash flows and the real cost of capital

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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