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Lakeside, Inc., is considering replacing old production equipment with state-of-the-art technology that will allow production cost...

Lakeside, Inc., is considering replacing old production equipment with state-of-the-art technology that will allow production cost savings of $10,000 per month. The new equipment will have a five-year life and cost $450,000, with an estimated salvage value of $40,000. Lakeside’s cost of capital is 8%. Table 6-4 and Table 6-5. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.)


Required:
Calculate the net present value of the new production equipment.

Solutions

Expert Solution

Calculation of Annual Cash Inflows
Particulars Details Amount
Annual Production Cost savings =$10000*12 $ 1,20,000.00
TOTAL ANNUAL CASH INFLOWS $ 1,20,000.00
CALCULATION OF NPV
Year Amount Discount Factors@8% Present Value
0 $ -4,50,000.00 1.000 $ -4,50,000.00
1 $   1,20,000.00 0.926 $   1,11,111.11
2 $   1,20,000.00 0.857 $   1,02,880.66
3 $   1,20,000.00 0.794 $      95,259.87
4 $   1,20,000.00 0.735 $      88,203.58
5 $   1,20,000.00 0.681 $      81,669.98
5 $       40,000.00 0.681 $      27,223.33
NPV $            56,349

ekkarill92 answered 2 years ago
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