Watson Leisure Time Sporting Goods has improved operations over time and the company needs to make a decision related to an equipment decision .
The company plans to purchase a new piece of equipment (to be used over a six year period) for $320,000.
Assume the cash flows and depreciation (based upon the use of the 5-year MACRS Schedule and Table 12-9) for the new equipment is as follows:
Cash Flow Depreciation
1 $120,000 $64,000
2 105,000 102,400
3 80,000 61,440
4 65,000 36,800
5 53,000 36,800
6 45,000 18,560
The firm has a 36 percent tax rate. Assuming depreciation is the only expense and based upon the cost of capital of 10%, calculate the net present value (NPV). Should the new equipment be purchased?
NPV = PV of cash flows - initial investment
The initial investment = $320,000
We are given the cash flows over the life of the ...
The solution explains how to decide whether the equipment should be purchased.
Capital Budgeting decisions for drug manufacturing company
Some capital-budgeting choices require managers to decide between upgrading high-technology research equipment and not upgrading.
Respond to the following questions:
1) How would financial managers at a drug manufacturing company use discounted-cash-flow models in their decision-making process?
2) If the equipment is not replaced, what would be the impact on future operating cash flows used in the model?View Full Posting Details