Cooper Construction is considering purchasing new,technologically advanced equipment.The equipment will cost $625,000 with a salvage value of $50,000 at the end of its useful life of 10 years.The equipment is expected to generate additional annual cash inflows with the following probabilities for the next 10 years:
$\begin{array} { c r }
\text { Probability } & \text { Cash Flow } \
.15 & \$ 60,000 \
.25 & 85,000 \
.45 & 110,000 \
.15 & 130,000
\end{array}$ A)What is the expected cash flow? B)Cooper's cost of capital is 10%.What is the expected net present value? C)Should Cooper buy the equipment?

Question

Cooper Construction is considering purchasing new,technologically advanced equipment.The equipment will cost $625,000 with a salvage value of $50,000 at the end of its useful life of 10 years.The equipment is expected to generate additional annual cash inflows with the following probabilities for the next 10 years:
$\begin{array} { c r } 
\text { Probability } & \text { Cash Flow } \
.15 & \$ 60,000 \
.25 & 85,000 \
.45 & 110,000 \
.15 & 130,000
\end{array}$ A)What is the expected cash flow? B)Cooper's cost of capital is 10%.What is the expected net present value? C)Should Cooper buy the equipment?

Quizplus · Accepted Answer

The Answer of Cooper Construction is considering purchasing new,technologically advanced equipment.The equipment will cost $625,000 with a salvage value of $50,000 at the end of its useful life of 10 years.The equipment is expected to generate additional annual cash inflows with the following probabilities for the next 10 years:
$\begin{array} { c r } 
\text { Probability } & \text { Cash Flow } \
.15 & \$ 60,000 \
.25 & 85,000 \
.45 & 110,000 \
.15 & 130,000
\end{array}$ A)What is the expected cash flow? B)Cooper's cost of capital is 10%.What is the expected net present value? C)Should Cooper buy the equipment?