The Johnson Research Organization, a nonprofit organization that does not pay taxes, is considering buying laboratory equipment with an estimated life of seven years so it will not have to use outsiders' laboratories for certain types of work. The following are all of the cash flows affected by the decision: Use Exhibit A.8. Investment (outflow at time 0) Periodic operating cash flows: Annual cash savings because outside laboratories are not used Additional cash outflow for people and supplies to operate the equipment Salvage value after seven years, which is the estimated life of this project $6,430,000 1,410,000 210,000 410,000 Discount rate 8% Required: Calculate the net present value of this decision. (Round PV factor to 3 decimal places.) Net present value Should the organization buy the equipment? O Yes O No
The Johnson Research Organization, a nonprofit organization that does not pay taxes, is considering buying laboratory equipment with an estimated life of seven years so it will not have to use outsiders' laboratories for certain types of work. The following are all of the cash flows affected by the decision: Use Exhibit A.8. Investment (outflow at time 0) Periodic operating cash flows: Annual cash savings because outside laboratories are not used Additional cash outflow for people and supplies to operate the equipment Salvage value after seven years, which is the estimated life of this project $6,430,000 1,410,000 210,000 410,000 Discount rate 8% Required: Calculate the net present value of this decision. (Round PV factor to 3 decimal places.) Net present value Should the organization buy the equipment? O Yes O No
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
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Transcribed Image Text:The Johnson Research Organization, a nonprofit organization that does not pay taxes, is considering buying
laboratory equipment with an estimated life of seven years so it will not have to use outsiders' laboratories for certain
types of work. The following are all of the cash flows affected by the decision: Use Exhibit A.8.
Investment (outflow at time 0)
Periodic operating cash flows:
Annual cash savings because outside laboratories are not used
$6,430,000
Additional cash outflow for people and supplies to operate the equipment
Salvage value after seven years, which is the estimated life of this project
1,410,000
210,000
410,000
Discount rate
8%
Required:
Calculate the net present value of this decision. (Round PV factor to 3 decimal places.)
Net present value
Should the organization buy the equipment?
Yes
O No
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