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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 $420,000, with an estimated salvage value of $30,000. Lakeside’s cost of capital is 10%. 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

Initial Investment $ 420,000
Annual Saving $ 120,000 =10000*12
Salvage Value $30,000
Year Annual Saving PV Factor @10% Present value $
& Salvage value
1                  120,000 0.9091                109,092
2                  120,000 0.8264                   99,168
3                  120,000 0.7513                   90,156
4                  120,000 0.6830                   81,960
5                  120,000 0.6209                   74,508
5                     30,000 0.6209                   18,627
Total                 630,000               473,511
Net Present Value $ 53,511 =473511-420000

ekkarill92 answered 1 year ago
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