Chapter Eight Exercise 3

Straightforward net present value calculations Contempo Inc. is considering the acquisition of some new labor-saving equipment. Management estimates that the equipment will cost $42,000 and will produce the following savings in cash operating costs during the next 5 years: Year 1, $17,000; Year 2, $13,000; Year 3, $10,000; Year 4, $10,000; and Year 5, $6,000. The company uses the net present value method to analyze investments and desires a minimum rate of return of 12%.

Compute the net present value of the proposed investment. Ignore income taxes and round to the nearest dollar.

Considering the time value of money , should Contempo acquire the new equipment? Why?

PLEASE COMPLETE ANSWERS IN THE FOLLOWING FORMAT. I HAVE TO PLACE ANSWERS IN AN PREFORMATED EXCEL SPREADSHEET.

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Compute the net present value of the proposed investment. Considering the time value of money should Contempo acquire the new equipment? Why? Account to be changed Number of games YOUR ANSW BASED UPC COURSE STA DATE Original Amount