Woods Company is considering the purchase of some equipment. The initial investment will be $100,000. The estimated useful life of the equipment will be 5 years, at which point it will have a zero terminal salvage value. The annual savings in cash operating costs at the end of each year, for five years, is $29,000. The company has a minimum desired rate of return of 12%. The company uses straight-line depreciation for financial reporting. Ignore income taxes. The cash operating savings of $29,000 do not include depreciation expenses.

Given:

1. The present value of an ordinary annuity of one at 12% and 5 periods is 3.6048.

2. The present value of one at 12% and 5 periods is 0.5674.

Compute:

A) Net present value.

B) Payback period

Answer rating: 100% (QA)

A Net Present Value NPV The formula for calculating Net Present Value NPV is NPV Initial Investment ... View the full answer