A corporation is considering purchasing a new plant asset. The asset will cost $30,000. The corporation requires a 10% return on similar investments. The corporation plans to use the ass for 4 years and then sell it for the salvage value. The estimated salvage value of the asset in 4 years is $5,000. The corporation estimates that if purchased the new asset will provide additi net cash flows of $9,000 each year for 4 years (assume the cash flows occur at the end of the year): Calculate the net present value (you must include the calculation in order to receive credit) Should the business purchase the asset?

A corporation is considering purchasing a new plant asset. The asset will cost $30,000. The corporation requires a 10% return on similar investments. The corporation plans to use the ass for 4 years and then sell it for the salvage value. The estimated salvage value of the asset in 4 years is $5,000. The corporation estimates that if purchased the new asset will provide additi net cash flows of $9,000 each year for 4 years (assume the cash flows occur at the end of the year): Calculate the net present value (you must include the calculation in order to receive credit) Should the business purchase the asset?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

A corporation is considering purchasing a new plant asset. The asset will cost $30,000. The
corporation requires a 10% return on similar investments. The corporation plans to use the asse
for 4 years and then sell it for the salvage value. The estimated salvage value of the asset in 4
years is $5,000. The corporation estimates that if purchased the new asset will provide addition
net cash flows of $9,000 each year for 4 years (assume the cash flows occur at the end of the
year):
Calculate the net present value
(you must include the calculation in order to receive credit)
Should the business purchase the asset?

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