Alcorn Company is considering purchasing equipment that costs $400,000.The equipment has an estimated useful life of 8 years and no salvage value.Alcorn believes that the annual cash inflows from using the equipment will be $80,000.
Required:
1)Calculate the net present value of the equipment assuming that Alcorn's cost of capital is 12%.Is the equipment an acceptable investment?
2)Calculate the net present value of the equipment assuming that Alcorn's cost of capital is 10%.Is the equipment an acceptable investment?
3)What general conclusion can you reach from your results to parts 1)and 2)?

Question

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The Answer of Alcorn Company is considering purchasing equipment that costs $400,000.The equipment has an estimated useful life of 8 years and no salvage value.Alcorn believes that the annual cash inflows from using the equipment will be $80,000.
Required:
1)Calculate the net present value of the equipment assuming that Alcorn's cost of capital is 12%.Is the equipment an acceptable investment?
2)Calculate the net present value of the equipment assuming that Alcorn's cost of capital is 10%.Is the equipment an acceptable investment?
3)What general conclusion can you reach from your results to parts 1)and 2)?

Alcorn Company Is Considering Purchasing Equipment That Costs $400,000