Current Attempt in Progress Martinez Industries is considering the purchase of new equipment costing $1,500,000 to replace existng equipment that will be sold for $100,000. The new equipment is expected to have a $230,000 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 $43 per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $90,000 in annual fixed costs. Click here to view the factor table. (a) Calculate the net present value of the proposed equipment purchase. Assume that Martinez 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, eg. 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 Martinez Industries invest in the new equipment? Yes No

Current Attempt in Progress Martinez Industries is considering the purchase of new equipment costing $1,500,000 to replace existng equipment that will be sold for $100,000. The new equipment is expected to have a $230,000 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 $43 per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $90,000 in annual fixed costs. Click here to view the factor table. (a) Calculate the net present value of the proposed equipment purchase. Assume that Martinez 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, eg. 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 Martinez Industries invest in the new equipment? Yes No

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 4E: Determine cash flows Natural Foods Inc. is planning to invest in new manufacturing equipment to make...

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