Figure 13-6
JD, Inc., is considering the purchase of production equipment that costs £400,000. The equipment is expected to generate annual cash inflows of £125,000. The equipment is expected to have a useful life of five years with no salvage value. The firm's cost of capital is 12 per cent.
-Refer to Figure 13-6. JD's net present value of the project is

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the annual cash inflows at the firm's cost of capital and subtracting the initial investment. Using the formula for NPV and a discount rate of 12%, the NPV is approximately £50,625.

Figure 13-6 JD, Inc., Is Considering the Purchase of Production Equipment That