Bionic Labs is considering buying equipment, which would enable the company to obtain a five-year research contract.

Question:

Bionic Labs is considering buying equipment, which would enable the company to obtain a five-year research contract. The specialized equipment costs $600,000 and will have no when the five-year contract period is over. The estimated annual operating results of the project are as follows:
Revenue .................. $700,000
Expenses (including straight-line depreciation) ...(600,000)
Increase in net income ............$100,000
All revenue from the contract and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes.
Refer to the information above. Compute the of this investment, using a of 12%. (An table shows that the present value of $1 received annually for five years, discounted at 12%, is 3.605.)
1. $142,500.
2. $193,100.
3. $360,500.
4. $793,100.

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... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...