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i) Calculate the present value of estimated annual cash revenues over the 8 years, ii) ii) Calculate the present value of estimated residual/scrap value. Calculate the Net Present Value (NPV) of the equipment

i) Calculate the present value of estimated annual cash revenues over the 8 years, ii) ii) Calculate the present value of estimated residual/scrap value. Calculate the Net Present Value (NPV) of the equipment

Essentials Of Investments
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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The data in Table 3.1 below relates to state-of-the-art map reproduction equipment that the Department of Geographical & Environmental Science of the National University of Lesotho hopes to purchase and to operate on a revenue generating basis using seed capital borrowed from the University Bursary. Table 3,1 Information on State-of-the-art Map Reproduction Equipment -Purchase cost of proposed equipment M6 000 000 -Estimated useful life of equipment 8 years -Residual/scrap value at the end of useful life of M2 400 000 equipment (i.e, end of year 8) -Estimated annual net cash revenue per year, which M110 000 escalates by 5% per year from year 2 through to year 8 -Cost of capital 15% (NB. Round discount factors to the nearest 2 decimal points) i) Calculate the present value of estimated annual cash revenues over the 8 years, ii) Calculate the present value of estimated residual/scrap value. ii) Calculate the Net Present Value (NPV) of the equipment On the basis of the NPV decision-rule, advice the Department of Geographical & Environmental Sciences on whether or not to proceed with the purchase of the equipment, iv)
Transcribed Image Text:The data in Table 3.1 below relates to state-of-the-art map reproduction equipment that the Department of Geographical & Environmental Science of the National University of Lesotho hopes to purchase and to operate on a revenue generating basis using seed capital borrowed from the University Bursary. Table 3,1 Information on State-of-the-art Map Reproduction Equipment -Purchase cost of proposed equipment M6 000 000 -Estimated useful life of equipment 8 years -Residual/scrap value at the end of useful life of M2 400 000 equipment (i.e, end of year 8) -Estimated annual net cash revenue per year, which M110 000 escalates by 5% per year from year 2 through to year 8 -Cost of capital 15% (NB. Round discount factors to the nearest 2 decimal points) i) Calculate the present value of estimated annual cash revenues over the 8 years, ii) Calculate the present value of estimated residual/scrap value. ii) Calculate the Net Present Value (NPV) of the equipment On the basis of the NPV decision-rule, advice the Department of Geographical & Environmental Sciences on whether or not to proceed with the purchase of the equipment, iv)
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