Flint Industries is considering the purchase of new equipment costing $1,237,000 to replace existing equipment that will be sold for $182,900. The new equipment is expected to have a $214,000 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 37,300 units annually at a sales price of $24 per unit. Those units will have a variable cost of $13 per unit. The company will also incur an additional $97,000 in annual fixed costs. Click here to view the factor table. Calculate the present value of each cash flow assuming an 7% 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 amounts using a negative sign preceding the number e.g. -58,971 or parentheses e.g. (58,971).)
Flint Industries is considering the purchase of new equipment costing $1,237,000 to replace existing equipment that will be sold for $182,900. The new equipment is expected to have a $214,000 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 37,300 units annually at a sales price of $24 per unit. Those units will have a variable cost of $13 per unit. The company will also incur an additional $97,000 in annual fixed costs. Click here to view the factor table. Calculate the present value of each cash flow assuming an 7% 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 amounts using a negative sign preceding the number e.g. -58,971 or parentheses e.g. (58,971).)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk
Section: Chapter Questions
Problem 1P: Talbot Industries is considering launching a new product. The new manufacturing equipment will cost...
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Step 1: Present Value of Purchase of new equipment and Salvage of old equipment:
VIEWStep 2: Total Present Value of Sales Revenue
VIEWStep 3: Total Present Value of Variable costs
VIEWStep 4: Total Present Value of Additional fixed costs: =397719.2
VIEWStep 5: Salvage Value of New Equipment: Present Value = 152579.04
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