A farm must decide whether or not to purchase anew tractor.The tractor will reduc costs by $2,000 in the first year,$2,500 in the second and $3,000 in the third and final year of usefulness.The tractor costs $9,000 today,while the above cost savings will be relized at the end of each year. if the interest rate is 7%. what is the net present value of purchasing the tractor?

A farm must decide whether or not to purchase anew tractor.The tractor will reduc costs by $2,000 in the first year,$2,500 in the second and $3,000 in the third and final year of usefulness.The tractor costs $9,000 today,while the above cost savings will be relized at the end of each year. if the interest rate is 7%. what is the net present value of purchasing the tractor?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5EA: If a garden center is considering the purchase of a new tractor with an initial investment cost of...

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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