Question
In: Accounting
2. LEAF Company is considering the purchase of new computer equipment that will increase efficiencies within...
2. LEAF Company is considering the purchase of new computer equipment that will increase efficiencies within its hospital floors. The following estimates are available: Initial Outlay $1,000,000 Annual reduction in fixed costs $175,000 Cost of capital 10% Estimated life of computer equipment 5 years Estimated residual value of equipment $25,000 Determine the net present value of the computer equipment purchase
Solutions
Expert Solution
| Ref | Particulars | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| a | Annual operating cash flows | $ 175,000 | $ 175,000 | $ 175,000 | $ 175,000 | $ 200,000 | |
| b | Present value factor@ 10.000% | 0.909090909 | 0.826446281 | 0.751314801 | 0.683013455 | 0.620921323 | |
| c= a*b | Present value of annual cashflows | $ 159,090.91 | $ 144,628.10 | $131,480.09 | $119,527.35 | $124,184.26 | |
| Total present value of annual cash inflows | $ 678,910.72 | ||||||
| Less: investment | $ (1,000,000.00) | ||||||
| NPV | $ (321,089.28) |
NPV is negative
NPV is (321,089.28)
Please rate.
ekkarill92 answered 1 year agoRelated Solutions
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