Martinez Industries is considering the purchase of new equipment costing $1,500,000 to replace exisg equipment that will be sold for $100,00O. 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.
Martinez Industries is considering the purchase of new equipment costing $1,500,000 to replace exisg equipment that will be sold for $100,00O. 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I could use some help with this I got 6210.4 rounded which I thought was correct however turns out it wasn’t can someone work this out so I can understand how to do the problem thanks
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Martinez 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 $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 $90,000 in annual fixed costs.
Click here to view the factor table.
(a) Calculate the net present value of the proposed equipment purchase. Assume that Martinez uses a 10% discount rate. (For
calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.
Enter negative amount using a negative sign preceding the number e.g. -59,992 or parentheses e.g. (59,992).)
Net present value
2$
(b) Do you recommend that Martinez Industries invest in the new equipment?
Yes
No
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