San Lucas Corporation is considering investment in robotic machinery based upon the following estimates: Cost of robotic

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San Lucas Corporation is considering investment in robotic machinery based upon the following estimates:

Cost of robotic machinery $4,000,000

Residual value 300,000

Useful life 10 years

a. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of $700,000. Use the present value tables appearing in Exhibits 2 and 5 of this chapter. 

b. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of $500,000, $700,000, and $900,000. Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer.

c. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 10%. Round to the nearest dollar.

d. Interpret the results of parts (a), (b), and (c).


Exhibit 2:

Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.893 0.797 0.943 0.890 0.840 0.909 0.826 0.870 0.833 0


Exhibit 5:

Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.893 1.690 2.402 0.943 1.833 2.673 3.465

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Forensic And Investigative Accounting

ISBN: 9780808056300

10th Edition

Authors: G. Stevenson Smith D. Larry Crumbley, Edmund D. Fenton

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