Problem $22-13$

A firm, whose cost of capital is $8$ percent, may acquire equipment for $$146,825$ and rent it to someone for a period of five years.

Note: Although payment of rent is typically considered to be an annuity due, treat it as an ordinary annuity when completing this problem in a spreadsheet or when using present value factors.

If the firm charges $$38,730$ annually to rent the equipment, what are the net present value and the internal rate of return on the investment? Use Appendix D to answer the questions. Use a minus sign to enter negative values, if any. Round your answers for the net present value to the nearest dollar and for the internal rate of return to the nearest whole number.

NPV: $

IRR:

$\%$

Should the firm acquire the equipment?

The firm

should

acquire the equipment as the net present value is

positive

$,$ and the internal rate of return

exceeds

the firm's cost of capital.

If the equipment has no estimated residual value, what must be the minimum annual rental charge for the firm to earn the required $8$ percent on the investment? Use Appendix D to answer the question. Round your answer to the nearest dollar.

$

If the firm can sell the equipment at the end of year five for $$12,700$ and receive annual rent payments of $$38,730,$ what are the net present value and the internal rate of return on the investment? Use Appendix B and Appendix D to answer the questions. Use a minus sign to enter negative values, if any. Round your answers for the net present value to the nearest dollar and for the internal rate of return to the nearest whole number.

NPV: $

IRR:

$\%$

What is the impact of the residual?

The residual value

increases

both the NPV and IRR.

If the $$12,700$ residual resulted in the firm charging only $$36,190$ for the rental payments, what is the impact on the investment$$s net present value? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.

Reducing the rental payments and recouping it through the residual value

reduces

the net present value by $

$.$