Net present value-purchase of equipment
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Golden Corporation is considering the purchase of new equipment costing $200,000. The expected life of the equipment is 10 years. It is expected that the new equipment can generate an increase in net income of $35,000 per year for the next 10 years. The probabilities for the increase in net income depend on the state of the economy.
The equipment will be depreciated using straight line depreciation. Golden's cost of capital is 14%. What is the expected NPV? Should they purchase the new equipment?
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Solution Summary
The solution contains detailed steps to compute NPV and to decide about the selection of the project or machine.
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Please find enclosed the answer.
Cash inflow
Net Income 35000
add+depreciation 20000
Cash inflow 55000
Present value of $ 1 at cost of ...
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