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?
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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
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