GoodWash Co. is a dishwasher manufacturing company. GoodWash is considering purchasing a new piece of manufacturing equipment for $800,000. The equipment is expected to last for 8 years, and management projects that purchasing the equipment would result in an additional $150,000 in pre-tax cash flow per year. Management does not expect the equipment to have any value at the end of 8 years, and so will fully depreciate the equipment on a straight-line basis.
To obtain the funds to purchase this equipment, GoodWash plans to raise capital from the following sources:
GoodWash's tax rate is 30%.
What is the Net Present Value of the proposed investment? Use a financial calculator to compute the Present Value of the future cash flows.

Question

GoodWash Co. is a dishwasher manufacturing company. GoodWash is considering purchasing a new piece of manufacturing equipment for $800,000. The equipment is expected to last for 8 years, and management projects that purchasing the equipment would result in an additional $150,000 in pre-tax cash flow per year. Management does not expect the equipment to have any value at the end of 8 years, and so will fully depreciate the equipment on a straight-line basis. 
To obtain the funds to purchase this equipment, GoodWash plans to raise capital from the following sources:
  GoodWash's tax rate is 30%.
What is the Net Present Value of the proposed investment? Use a financial calculator to compute the Present Value of the future cash flows.

Quizplus · Accepted Answer

The Answer of GoodWash Co. is a dishwasher manufacturing company. GoodWash is considering purchasing a new piece of manufacturing equipment for $800,000. The equipment is expected to last for 8 years, and management projects that purchasing the equipment would result in an additional $150,000 in pre-tax cash flow per year. Management does not expect the equipment to have any value at the end of 8 years, and so will fully depreciate the equipment on a straight-line basis. 
To obtain the funds to purchase this equipment, GoodWash plans to raise capital from the following sources:
  GoodWash's tax rate is 30%.
What is the Net Present Value of the proposed investment? Use a financial calculator to compute the Present Value of the future cash flows.