(Ignore income taxes in this problem.) Isomer Industrial Training Corporation is considering the purchase of new presentation equipment at a cost of $150,000. The equipment has an estimated useful life of 10 years with an expected salvage value of zero. The equipment is expected to generate net cash inflows of $35,000 per year in each of the 10 years. Isomer's discount rate is 16%. Isomer uses the straight-line method of depreciation for its assets.
-What is the net present value of the presentation equipment?

Question

Quizplus · Accepted Answer

The net present value of the presentation equipment is $19,155. This is calculated by taking the present value of the net cash inflows and subtracting the cost of the equipment. The present value of the net cash inflows is calculated by multiplying the net cash inflows by the present value factor for 10 years at 16%. The present value factor is 0.5645. The present value of the net cash inflows is $19,758. The cost of the equipment is $150,000. The net present value is $19,758 - $150,000 = $19,155.

(Ignore Income Taxes in This Problem