Grady Corp.is considering the purchase of a new piece of equipment.The equipment costs $50,000,and will have a salvage value of $5,000 after nine years.Using the new piece of equipment will increase Grady's annual cash flows by $6,000.Grady has a hurdle rate of 12%.
a.What is the present value of the increase in annual cash flows?
b.What is the present value of the salvage value?
c.What is the net present value of the equipment purchase?
d.Based on financial factors,should Grady purchase the equipment? Why?

Question

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The Answer of Grady Corp.is considering the purchase of a new piece of equipment.The equipment costs $50,000,and will have a salvage value of $5,000 after nine years.Using the new piece of equipment will increase Grady's annual cash flows by $6,000.Grady has a hurdle rate of 12%.
a.What is the present value of the increase in annual cash flows?
b.What is the present value of the salvage value?
c.What is the net present value of the equipment purchase?
d.Based on financial factors,should Grady purchase the equipment? Why?