Burgess Corporation is considering purchasing equipment that costs $235,000.The equipment has an estimated useful life of 5 years and no salvage value.Burgess believes that the annual cash inflows from using the equipment will be $65,000.
Required:
1)Calculate the net present value of the equipment assuming that Burgess's cost of capital is 12%.Is the equipment an acceptable investment?
2)Calculate the net present value of the equipment assuming that Burgess's cost of capital is 10%.Is the equipment an acceptable investment?
3)Based on your results to parts 1)and 2),estimate the internal rate of return for the investment in the equipment.

Question

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The Answer of Burgess Corporation is considering purchasing equipment that costs $235,000.The equipment has an estimated useful life of 5 years and no salvage value.Burgess believes that the annual cash inflows from using the equipment will be $65,000.
Required:
1)Calculate the net present value of the equipment assuming that Burgess's cost of capital is 12%.Is the equipment an acceptable investment?
2)Calculate the net present value of the equipment assuming that Burgess's cost of capital is 10%.Is the equipment an acceptable investment?
3)Based on your results to parts 1)and 2),estimate the internal rate of return for the investment in the equipment.

Burgess Corporation Is Considering Purchasing Equipment That Costs $235,000