Newport 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 $200,000.The equipment will have an initial cost of $900,000 and have a 6 year life.There is no salvage value for the equipment.If the hurdle rate is 10%,what is the approximate net present value? Ignore income taxes.

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the annual cash flows at the hurdle rate and subtracting the initial investment. The NPV formula is: NPV = Σ (Cash flow / (1 + r)^t) - Initial investment. Using a 10% discount rate, the NPV is approximately negative $28,940.

Newport Corp Is Considering the Purchase of a New Piece