Question
In: Accounting
Eastside Farms is considering the purchase of a mechanical harvester. It costs $180,000 and is expected...
Eastside Farms is considering the purchase of a mechanical harvester. It costs $180,000 and is expected to last for five years. They presently hire 10 workers at $3,000 per month for each of the six harvesting months each year. The equipment would eliminate the need for 3 workers. Eastside projects a salvage value of $23,000. Ignoring the tax implications and assuming the opportunity cost of funds is 8.0%, what is the Net Present Value (NPV) of this proposed investment?
Solutions
Expert Solution
Answer:
Net Present Value (NPV) = Present value of total cash inflows - Present value of total cash outflows
Present value of total cash outflows
Present value of total cash outflows = Cost of the asset = $180,000
Present value of total cash inflows
Annual cost savings = 3 workers * $3,000 per month * 6 months = $54,000
Salvage value at the end of Year 5 = $23,000
Net Present Value (NPV) = Present value of total cash inflows - Present value of total cash outflows
= $231,254 - $180,000
= $51,254
Note: The NPV general assumption is that the cash flows occur at end of every year.
ekkarill92 answered 2 years agoRelated Solutions
Eastside Farms is considering the purchase of a mechanical harvester. It costs $180,000 and is expected...
Eastside Farms is considering the purchase of a mechanical
harvester. It costs $180,000 and is expected to last for five
years. They presently hire 10 workers at $3,000 per month for each
of the six harvesting months each year. The equipment would
eliminate the need for 3 workers. Eastside projects a salvage value
of $23,000. Ignoring the tax implications and assuming the
opportunity cost of funds is 8.0%, what is the Net Present Value
(NPV) of this proposed investment?
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The Cornchopper Company is considering the purchase of a new harvester. The new harvester is not...
The Cornchopper Company is considering the purchase of a new
harvester.
The new harvester is not expected to affect revenue, but
operating expenses will be reduced by $13,100 per year for 10
years.
The old harvester is now 5 years old, with 10 years of its
scheduled life remaining. It was originally purchased for $67,000
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The Cornchopper Company is considering the purchase of a new harvester. The new harvester is not...
The Cornchopper Company is considering the purchase of a new
harvester.
The new harvester is not expected to affect revenues, but
pretax operating expenses will be reduced by $12,100 per year for
10 years.
The old harvester is now 5 years old, with 10 years of its
scheduled life remaining. It was originally purchased for $52,500
and has been depreciated by the straight-line method.
The old harvester can be sold for $20,100 today.
The new harvester will be depreciated by...
The Cornchopper Company is considering the purchase of a new harvester. The new harvester is not...
The Cornchopper Company is considering the purchase of a new
harvester.
The new harvester is not expected to affect revenue, but
operating expenses will be reduced by $13,400 per year for 10
years.
The old harvester is now 5 years old, with 10 years of its
scheduled life remaining. It was originally purchased for $71,000
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harvester. The new harvester is not expected to affect revenues,
but pretax operating expenses will be reduced by $13,400 per year
for 10 years. The old harvester is now 5 years old, with 10 years
of its scheduled life remaining. It was originally purchased for
$70,500 and has been depreciated by the straight-line method. The
old harvester can be sold for $21,400 today. The new harvester will
be depreciated by...
The Cornchopper Company is considering the purchase of a new harvester. The new harvester is not...
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harvester.
The new harvester is not expected to affect revenue, but
operating expenses will be reduced by $13,400 per year for 10
years.
The old harvester is now 5 years old, with 10 years of its
scheduled life remaining. It was originally purchased for $71,000
and has been depreciated by the straight-line method.
The old harvester can be sold for $21,400 today.
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scheduled life remaining. It was originally purchased for $91,000
and has been depreciated by the straight-line method.
The old harvester can be sold for $22,600 today.
The new harvester will be depreciated by the...
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