Woods Company is considering the purchase of some equipment. Theinitial investment will be $100,000. The estimated useful life ofthe equipment will be 5 years, at which point it will have a zeroterminal salvage value. The annual savings in cash operating costsat the end of each year, for five years, is $29,000. The companyhas a minimum desired rate of return of 12%. The company usesstraight-line depreciation for financial reporting. Ignore incometaxes. The cash operating savings of $29,000 do not includedepreciation expense.
Given:
The present value of ordinary annuity of one at 12% and 5periods is 3.6048.
The present value of one at 12% and 5 periods is 0.5674.
Compute:
A) Net present value
B) Payback period
Woods Company is considering the purchase of some equipment. Theinitial investment will be $100,000. The estimated useful life ofthe equipment will be 5 years, at which point it will have a zeroterminal salvage value. The annual savings in cash operating costsat the end of each year, for five years, is $29,000. The companyhas a minimum desired rate of return of 12%. The company usesstraight-line depreciation for financial reporting. Ignore incometaxes. The cash operating savings of $29,000 do not includedepreciation expense.
Given:
The present value of ordinary annuity of one at 12% and 5periods is 3.6048.
The present value of one at 12% and 5 periods is 0.5674.
Compute:
A) Net present value
B) Payback period
Related questions
| New Hampshire Company is considering two investments. Therelevant data follows: ProjectA Project B Cost $200,000 $300,000 Annual cash savings(end ofyear) $50,692 $60,995 Terminal salvagevalue $50,000 $70,000 Estimated useful life inyears 5 5 Minimum desired rate ofreturn 10% 10% Method ofdepreciation Straight-line Straight-line PresentValue Present Value Of$1 of Ordinary for 5periods Annuity of $1 for 5 periods 5% 0.7835 4.3295 6% 0.7473 4.2124 7% 0.713 4.1002 8% 0.6806 3.9927 10% 0.6209 3.7908 12% 0.5674 3.6048 14% 0.5194 3.4331 Ignore taxes. Using the net present value method, which projectshould be accepted? SHOW WORK | ||
