Question

Newport 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 $215,000. The equipment will have an initial cost of $977,000 and have a 6-year life. There is no salvage value for the equipment. If the hurdle rate is 8%, what is the approximate net present value? Ignore income taxes..

Answer 1

NPV = $16,919

Step-by-step explanation:

The Net Present value is the present value of cash inflow (cost savings ) from the project less the present value of initial cost.

NPV = Present value of cash inflow - Present value of cash outflow

PV = annual cash flow × (1-1+r^-n)/r

=215,000× (1- 1.08^-6)/0.08

=993919.1

NPV = 993,919.1-977,000= 16,919

NPV = $16,919