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Byron Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $103,000. The equipment will have an initial cost of $423,000 and have a 5-year life. The salvage value of the equipment is estimated to be $80,000. If the hurdle rate is 12%, what is the approximate net present value

Respuesta :

Answer:

The approximate net present value is $41,005.

Explanation:

Note: See the attached excel file for the calculation of the net present value (in red color).

In the attached excel file, the following are used:

n = The particular year in reference

r = hurdle rate = 12%, or 0.12

The approximate net present value is therefore calculate by adding all the present values in the attached excel file from year 0 to year 6 to obtain $41,005.

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