Walker Inc. is considering the purchase of new equipmentthat will automate production and thus reduce labor costs. Walker made the following estimatesrelated to the new machinery: Cost of the equipment $120,000Reduced annual labor costs $40,000Estimated life of equipment 5 yearsTerminal disposal value $0After-tax cost of capital 8%Tax rate 25%Assume depreciation is calculated on a straight-line basis for tax purposes. Assume all cash flows occur atyear-end except for initial investment amounts. Q. Calculate net present value?

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Walker Inc. is considering the purchase of new equipment
that will automate production and thus reduce labor costs. Walker made the following estimates
related to the new machinery:


Cost of the equipment $120,000
Reduced annual labor costs $40,000
Estimated life of equipment 5 years
Terminal disposal value $0
After-tax cost of capital 8%
Tax rate 25%
Assume depreciation is calculated on a straight-line basis for tax purposes. Assume all cash flows occur at
year-end except for initial investment amounts.


Q. Calculate net present value?

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