Question: Whispering Winds Inc. wants to replace its current equipment with new high - tech equipment. The existing equipment was purchased 5 years ago at a

Whispering Winds Inc. wants to replace its current equipment with new high-tech equipment. The existing equipment was purchased 5 years ago at a cost of $120,000. At that time, the equipment had an expected life of 10 years, with no expected salvage value. The equipment is being depreciated on a straight-line basis. Currently, the market value of the old equipment is $43,000.The new equipment can be bought for $173,460, including installation. Over its 10-year life, it will reduce operating expenses from $192.400 to $145,100 for the first six years, and from $201,400 to $194,000 for the last four years. Net working capital requirements will also increase by $20,900 at the time of replacement.It is estimated that the company can sell the new equipment for $24,400 at the end of its life. Since the new equipment's cash flows are relatively certain, the project's cost of capital is set at 10%, compared with 15% for an average-risk project. The firm's maximum acceptable payback period is 5 years.Click here to view the factor table.Calculate the project's net present value. (If the net present value is negative, use either a negative sign preceding the number e g.-45 or parentheses e.g.(45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, eg.1.25124 and final answer to 0 decimal places, e.g.5,275.)Net present value$

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!