Harglo Construction is considering purchasing a radio antenna for broadcasting to service trucks over the airwaves rather than using telephone lines. The antenna is expected to reduce cash operating costs by $2000 the first year, $2500 the second year, and $3000 the third year. The antenna will cost $6000, will last 3 years (due to technological advances), and will have no residual value at the end of its life. Harglo's minimum acceptable rate of return is 8%.
Required:
(1) Calculate the net present value of the investment in the antenna.
(2) If Harglo's cost of capital was 12%, would this proposal be acceptable?

Question

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The Answer of Harglo Construction is considering purchasing a radio antenna for broadcasting to service trucks over the airwaves rather than using telephone lines. The antenna is expected to reduce cash operating costs by $2000 the first year, $2500 the second year, and $3000 the third year. The antenna will cost $6000, will last 3 years (due to technological advances), and will have no residual value at the end of its life. Harglo's minimum acceptable rate of return is 8%.
Required:
(1) Calculate the net present value of the investment in the antenna.
(2) If Harglo's cost of capital was 12%, would this proposal be acceptable?

Harglo Construction Is Considering Purchasing a Radio Antenna for Broadcasting