**Exercise A-17 (Static) Present Value Analysis in Nonprofit Organizations**The Minock Group, a nonprofit organization that does not pay taxes, is considering buying laboratory equipment with an estimated life of seven years. This purchase would eliminate the need for using outsiders' laboratories for certain types of work. The following are all the cash flows affected by the decision:- **Investment (outflow at time 0):** $5,000,000- **Periodic operating cash flows:** - Annual cash savings because outside laboratories are not used: $950,000 - Additional cash outflow for people and supplies to operate the equipment: $150,000- **Salvage value after seven years:** $200,000- **Discount rate:** 6%**Required:**a. Calculate the net present value (NPV) of this decision. - **Note:** Round the PV factor to 3 decimal places. Negative amounts should be indicated by a minus sign.b. Should The Minock Group buy the equipment?**a. Net present value** [Input box for calculation]**b. Should The Minock Group buy the equipment?**[Input box for decision] **Explanation:** This exercise involves determining whether the investment in laboratory equipment is financially viable for The Minock Group by calculating its net present value using the given discount rate and projected cash flows over the equipment's life span.

Net present value is computed as present value of cash inflows less initial investmentIf net present…

The Minock Group, 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 Discount rate Required: a. Calculate the net present value of this decision. Note: Round PV factor to 3 decimal places. Negative amounts should be indicated by a minus sign. b. Should The Minock Group buy the equipment? $5,000,000 950,000 150,000 280,000 6%

The Minock Group, 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 Discount rate Required: a. Calculate the net present value of this decision. Note: Round PV factor to 3 decimal places. Negative amounts should be indicated by a minus sign. b. Should The Minock Group buy the equipment? $5,000,000 950,000 150,000 280,000 6%

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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