Boulder Creek Industries is considering an investment in equipment based on the following estimates: Cost of equipment........................................$3,000,000
Question:
Boulder Creek Industries is considering an investment in equipment based on the following estimates:
Cost of equipment........................................$3,000,000
Residual value................................................200,000
Useful life.........................................................10 years
a. Determine the net present value of the equipment, assuming a desired rate of return of 12% and annual net cash flows of $800,000. 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 12% and annual net cash flows of $400,000, $600,000, and $800,000. Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer.
c. Determine the net present value of the equipment, assuming a desired rate of return of 15% and annual net cash flows of $400,000, $600,000, and $800,000. Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer.
d. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 12%. Round to the nearest dollar.
e. Interpret the results of parts (b), (c), and (d).
Exhibit 2:
Exhibit 5:
Net Present ValueWhat 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...
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Forensic And Investigative Accounting
ISBN: 9780808056300
10th Edition
Authors: G. Stevenson Smith D. Larry Crumbley, Edmund D. Fenton