Replacing old equipment at an immediate cost of ​$60,000 and an additional outlay of ​$10,000 six years from now will result in savings of ​$11,000 per year for 9 years. The required rate of return is 10​% compounded annually. Compute the net present value and determine if the investment should be accepted or rejected according to the net present value criterion.

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
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Problem 3CMA
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Replacing old equipment at an immediate cost of

​$60,000

and an additional outlay of

​$10,000
six

years from now will result in savings of

​$11,000

per year for

9

years. The required rate of return is

10​%

compounded

annually.

Compute the net present value and determine if the investment should be accepted or rejected according to the net present value criterion.

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