Reference no: EM132813091

You are working as the controller of Bella, Inc. and are considering buying one of the following three equipment purchases:

Equipment I would require an immediate cash outlay of $40,000 and would result in cash inflow of $91,000 at the end of 7 years.
Equipment 2 would require cash outlays of $48,000 now and would provide a cash savings of $10,000 per year for the next 7 years.
Equipment 3 would require a cash outlay of $6,000 per year for 7 years and would provide a cash inflow of $70,000 at the end of 7 years. (Ignore income taxes.)

Present value of $1; n=7 & i=12% -& 0.452
Present value of an annuity of $1; n=7 & i=12% -> 4.564

Required:

Problem 1: The discount rate is 12%. Using the net present value method, calculate the NPV of each investment and determine which, if any, of the three equipment investments is acceptable. Remember that you can only choose one item to purchase. (Please show your work for each investment).