Sunny Days Corporation is deciding whether to automate one phase of its production process. The equipment has a six-year life and will cost $300,000. Projected net cash inflows from the equipment are as follows: Sunny Days Corporation's hurdle rate is 10%.
If Sunny Days Corporation decides to refurbish the equipment at a cost of $70,000 at the end of year 6, it could be used for one more year and would have a $50,000 residual value at the end of year 7. Assume the cash inflow in year 7 is $80,000. What is the NPV of just the refurbishment?
Present Value of $1
Present Value of Annuity of $1

Question

Sunny Days Corporation is deciding whether to automate one phase of its production process. The equipment has a six-year life and will cost $300,000. Projected net cash inflows from the equipment are as follows:  Sunny Days Corporation's hurdle rate is 10%.
If Sunny Days Corporation decides to refurbish the equipment at a cost of $70,000 at the end of year 6, it could be used for one more year and would have a $50,000 residual value at the end of year 7. Assume the cash inflow in year 7 is $80,000. What is the NPV of just the refurbishment?
Present Value of $1
 Present Value of Annuity of $1

Quizplus · Accepted Answer

The Answer of Sunny Days Corporation is deciding whether to automate one phase of its production process. The equipment has a six-year life and will cost $300,000. Projected net cash inflows from the equipment are as follows:  Sunny Days Corporation's hurdle rate is 10%.
If Sunny Days Corporation decides to refurbish the equipment at a cost of $70,000 at the end of year 6, it could be used for one more year and would have a $50,000 residual value at the end of year 7. Assume the cash inflow in year 7 is $80,000. What is the NPV of just the refurbishment?
Present Value of $1
 Present Value of Annuity of $1

Sunny Days Corporation Is Deciding Whether to Automate One Phase