Ayayai Industries is considering the purchase of new equipment costing $1,500,000 to replace existing equipment that will be sold for $100,000. The new equipment is expected to have a $180,000 salvage value at the end of its 5-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 20,000 units annually at a sales price of $35 per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $70,000 in annual fixed costs. (a) Calculate the net present value of the proposed equipment purchase. Assume that Ayayai uses a 10% discount rate.
Ayayai Industries is considering the purchase of new equipment costing $1,500,000 to replace existing equipment that will be sold for $100,000. The new equipment is expected to have a $180,000 salvage value at the end of its 5-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 20,000 units annually at a sales price of $35 per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $70,000 in annual fixed costs. (a) Calculate the net present value of the proposed equipment purchase. Assume that Ayayai uses a 10% discount rate.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Please do not give solution in image format thanku
Transcribed Image Text:Ayayai Industries is considering the
purchase of new equipment costing
$1,500,000 to replace existing equipment
that will be sold for $100,000. The new
equipment is expected to have a $180,000
salvage value at the end of its 5-year life.
During the period of its use, the equipment
will allow the company to produce and sell
an additional 20,000 units annually at a
sales price of $35 per unit. Those units will
have a variable cost of $22 per unit. The
company will also incur an additional
$70,000 in annual fixed costs.
(a) Calculate the net present value of the
proposed equipment purchase. Assume
that Ayayai uses a 10% discount rate.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education