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Home Q & A Board Science-Related Homework Help Mathematics
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ikrabbe ikrabbe
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6 years ago
Replacing old equipment at an immediate cost of $75 000 and an additional outlay of $10 000 six years from now will result in savings of $3120 per quarter for 11 years. The required rate of return is 11.4% compounded annually. Use the net present value method to determine whether the company should replace old equipment or not.
Textbook 
Contemporary Business Mathematics with Canadian Applications

Contemporary Business Mathematics with Canadian Applications


Edition: 11th
Authors:
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#1
6 years ago
Outlays: FV = $10 000; I/Y = 11.4%; P/Y = C/Y = 1; n = 6(1) = 6;
PV = 10 000  = $5232.25
PVOUT = 75 000 + 5232.25 = $80 232
Inflows: PMT = $3 120; P/Y = 4; C/Y = 1; c =   = 0.25; n = 4(11) = 44;
p =   - 1 = .0273568
PV = 3120  = $79 266.63 = $79 267
PVIn = $79 267
NPV = 79 267 - 80 232 = -$965 < 0, The equipment shouldn't be replaced at the current rate of return.
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