Culver 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 $210,000 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 25,000 units annually at a sales price of $44 per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $80,000 in annual fixed costs. Click here to view the factor table. (a) Calculate the net present value of the proposed equipment purchase. Assume that Culver uses a 10% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971. Enter negative amount using a negative sign preceding the number e.g. -59,992 or parentheses e.g. (59,992).) Net present value $enter the net present value in dollars rounded to 0 decimal places (b) Do you recommend that Culver Industries invest in the new equipment? select an option
Culver 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 $210,000 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 25,000 units annually at a sales price of $44 per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $80,000 in annual fixed costs. Click here to view the factor table. (a) Calculate the net present value of the proposed equipment purchase. Assume that Culver uses a 10% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971. Enter negative amount using a negative sign preceding the number e.g. -59,992 or parentheses e.g. (59,992).) Net present value $enter the net present value in dollars rounded to 0 decimal places (b) Do you recommend that Culver Industries invest in the new equipment? select an option
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
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Culver 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 $210,000 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 25,000 units annually at a sales price of $44 per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $80,000 in annual fixed costs.
Click here to view the factor table.
(a) Calculate the
| Net present value | $enter the net present value in dollars rounded to 0 decimal places |
(b) Do you recommend that Culver Industries invest in the new equipment?
| select an option |
Transcribed Image Text:Culver 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 $210,000 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 25,000 units annually at a sales price of $44 per unit.
Those units will have a variable cost of $22 per unit. The company will also incur an additional $80,000 in annual fixed costs.
Click here to view the factor table.
(a) Calculate the net present value of the proposed equipment purchase. Assume that Culver uses a 10% discount rate. (For
calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to O decimal place, e.g. 58,971.
Enter negative amount using a negative sign preceding the number e.g. -59,992 or parentheses e.g. (59,992).)
Net present value
$
(b) Do you recommend that Culver Industries invest in the new equipment?
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