B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $379,200 and has a 12-year life and no salvage value. B2B Company requires at least an 8% return on this investment. The expected annual income for each year from this equipment follows: (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Equipment Selling, general, and administrative expenses Income (a) Compute the net present value of this investment. (b) Should the investment be accepted or rejected on the basis of net present value? Complete this question by entering your answers in the tabs below. Required A Required Compute the net present value of this investment. Note: Round your present value factor to 4 decimals and other final answers to the nearest whole dollar. Years 1 through 12 Net present value Annual Net Cash Flows x $ 237,000 83,000 31,600 23,700 $ 98,700 Present Value of Annuity at 8% = Present Value of Net Cash Flows
B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $379,200 and has a 12-year life and no salvage value. B2B Company requires at least an 8% return on this investment. The expected annual income for each year from this equipment follows: (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Equipment Selling, general, and administrative expenses Income (a) Compute the net present value of this investment. (b) Should the investment be accepted or rejected on the basis of net present value? Complete this question by entering your answers in the tabs below. Required A Required Compute the net present value of this investment. Note: Round your present value factor to 4 decimals and other final answers to the nearest whole dollar. Years 1 through 12 Net present value Annual Net Cash Flows x $ 237,000 83,000 31,600 23,700 $ 98,700 Present Value of Annuity at 8% = Present Value of Net Cash Flows
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 2P
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