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Prent Attempt in Progress Pina Colada 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 $200,000 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 $41 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 Pina Colada 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 numbereg. -59,992 or parentheses eg. (59,992).) Net present value 24 (b) Do you recommend that Pina Colada lIndustries invest in the new equipment?

Prent Attempt in Progress Pina Colada 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 $200,000 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 $41 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 Pina Colada 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 numbereg. -59,992 or parentheses eg. (59,992).) Net present value 24 (b) Do you recommend that Pina Colada lIndustries invest in the new equipment?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Current Attempt in Progress Pina Colada 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 $200,000 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 $41 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. y Good Click here to view the factor table. egin your asse (a) Calculate the net present value of the proposed equipment purchase. Assume that Pina Colada 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 eg. -59,992 or parentheses eg. (59,992).) laving issues? Net present value 24 (b) Do you recommend that Pina Colada lIndustries invest in the new equipment?
Transcribed Image Text:Current Attempt in Progress Pina Colada 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 $200,000 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 $41 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. y Good Click here to view the factor table. egin your asse (a) Calculate the net present value of the proposed equipment purchase. Assume that Pina Colada 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 eg. -59,992 or parentheses eg. (59,992).) laving issues? Net present value 24 (b) Do you recommend that Pina Colada lIndustries invest in the new equipment?
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