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In: Accounting

Hasson Corporation is investigating the purchase of a new computerized scheduling system with special hardware with...

Hasson Corporation is investigating the purchase of a new computerized scheduling system with special hardware with a useful life of 9 years. The company uses a discount rate of 10% in its capital budgeting. The net present value of the investment, excluding its intangible benefits, is -$505,000. Ignore income taxes in this problem.

Required:

  1. DRAW A TIME LINE GRAPH FOR THIS PROJECT.
  2. Applying your knowledge of annuity tables, calculate the annuity amount that would create an NPV of zero.
  3. How large would the additional cash flow per year from the intangible benefits have to be to make the investment in the automated equipment financially attractive?

Solutions

Expert Solution

PMT=?
NPV -505000 A
Discount Rate 10% B
Time 9 Yrs C
PVAF for 10% for 9 yrs 5.759024 D
Minimum Value 2908307 A*D
PMT 323145
Year PMT PA factor @10% PV Year PMT PA factor @10% PV
1 323145                       0.909 323145 1 423145         0.909 423145
2 323145                       0.826 323145 2 423145         0.826 423145
3 323145                       0.751 323145 3 423145         0.751 423145
4 323145                       0.683 323145 4 423145         0.683 423145
5 323145                       0.621 323145 5 423145         0.621 423145
6 323145                       0.564 323145 6 423145         0.564 423145
7 323145                       0.513 323145 7 423145         0.513 423145
8 323145                 0.467 323145 8 423145      0.467 423145
9 323145                 0.424 323145 9 423145      0.424 423145
Total 2908307                 5.759 2908307 Total 3808307      5.759 3808307

ekkarill92 answered 1 year ago
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