Byron Corp is considering the purchase of a new piece of equipment.The cost savings from the equipment would result in an annual increase in cash flow of $100,000.The equipment will have an initial cost of $400,000 and have a 5 year life.The salvage value of the equipment is estimated to be $75,000.If the hurdle rate is 15%,what is the approximate net present value? Ignore income taxes.

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash flows and subtracting the initial investment. The cash flows are $100,000 annually for 5 years, and the salvage value is $75,000 at the end of year 5. Using a 15% discount rate, the NPV is approximately negative $27,490.

Byron Corp Is Considering the Purchase of a New Piece