Grady Corp. is considering the purchase of a new piece ofequipment. The equipment costs $50,100, and will have a salvagevalue of $5,120 after six years. Using the new piece of equipmentwill increase Gradyâs annual cash flows by $6,090. Grady has ahurdle rate of 10%. (Future Value of $1,Present Value of $1, Future Value Annuity of $1, Present ValueAnnuity of $1.) (Use appropriate factor from thePV tables.)
a. What is the present value of the increase inannual cash flows? (Round your answer to 2 decimalplaces.)
b. What is the present value of the salvage value?(Round your answer to 2 decimal places.)
c. What is the net present value of the equipmentpurchase? (Negative value should beindicated by a minus sign. Round your intermediate calculation andfinal answer to 2 decimal places.)
d. Based on financial factors, should Gradypurchase the equipment?
Yes No
Grady Corp. is considering the purchase of a new piece ofequipment. The equipment costs $50,100, and will have a salvagevalue of $5,120 after six years. Using the new piece of equipmentwill increase Gradyâs annual cash flows by $6,090. Grady has ahurdle rate of 10%. (Future Value of $1,Present Value of $1, Future Value Annuity of $1, Present ValueAnnuity of $1.) (Use appropriate factor from thePV tables.)
a. What is the present value of the increase inannual cash flows? (Round your answer to 2 decimalplaces.)
b. What is the present value of the salvage value?(Round your answer to 2 decimal places.)
c. What is the net present value of the equipmentpurchase? (Negative value should beindicated by a minus sign. Round your intermediate calculation andfinal answer to 2 decimal places.)
d. Based on financial factors, should Gradypurchase the equipment?
| Yes | |
| No |
Related questions
5) Citrus Company is considering a project that has estimated annual net cash flows of $23,430 for four years and is estimated to cost $110,000. Citrusâs cost of capital is 6 percent.
Determine the net present value of the project. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Round your final answer to 2 decimal places.)
6) Vaughn Company has the following information about a potential capital investment:
| ||||||||||||||||||||||||||
Balloons By Sunset (BBS) is considering the purchase of two new hotair balloons so that it can expand its desert sunset tours. Variousinformation about the proposed investmentfollows:
| Initial investment (for two hot air balloons) | $ | 449,000 | |||||
| Usefullife | 8 | years | |||||
| Salvagevalue | $ | 57,000 | |||||
| Annual netincome generated | 39,512 | ||||||
| BBSâs cost ofcapital | 12 | % | |||||
Assume straight line depreciation method is used.
Required:
Help BBS evaluate this project by calculating each of thefollowing:
1. Accounting rate of return. (Round your answer to 1 decimalplace.)
2. Payback period. (Round your answer to 2 decimalplaces.)
3. Net present value (NPV). (Future Value of $1, Present Value of $1,Future Value Annuity of $1, Present Value Annuity of $1.)(Use appropriatefactor(s) from the tables provided. Do not round intermediatecalculations. Negative amount should be indicated by a minus sign.Round the final answer to nearest wholedollar.)
4. Recalculate the NPV assuming BBS's cost ofcapital is 15 percent. (Future Value of $1, Present Value of $1,Future Value Annuity of $1, Present Value Annuity of $1.)(Use appropriatefactor(s) from the tables provided. Do not round intermediatecalculations. Negative amount should be indicated by a minus sign.Round the final answer to nearest wholedollar.)
