Capital Investment Decision: Net Present Value Method

Full Service Station is planning to invest in automatic car wash equipment valued at $210,000. The owner estimates that the equipment will increase annual net cash inflows by $40,000. The equipment is expected to have a ten-year useful life with an estimated residual value of $20,000. The company requires a 20 percent minimum rate of return.

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Using the net present value method, prepare an analysis to determine whether the company should purchase the equipment. Use Table 1 and Table 2 in the appendix on present value tables. Round your answers to the nearest dollar except for the present value factor which is rounded to three decimal places. Enter a negative net present value as a negative number.

Year		Net Cash Inflows		20% Factor		Present Value
110		$				$
Residual value
Total present value of cash inflows						$
Less purchase price of machine
Net present value						$