Memory Florist is considering replacing an old refrigeration unit with a larger unit to store flowers. Because the new refrigeration unit has a larger capacity, Memory estimates that it can sell an additional $9,000 of flowers a year. (The cost of the flowers is $5,000). In addition, the new unit is energy efficient and should save $1,200 in electricity each year. It will cost an extra $2,000 per year for maintenance. The new refrigeration unit costs $25,000 and has an expected life of 10 years. The old unit is fully depreciated and can be sold for an amount equal to disposal cost. At the end of 10 years, the new unit has an expected residual value of $6,000. Determine the net present value of the investment if the required rate of retum is 14 percent. (Ignore taxes.) Should the investment be undertaken?

  • CreatedSeptember 23, 2013
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