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Compute the net present value of the proposed investment

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Reference no: EM131151213

Straightforward net present value calculations

Contempo Inc. is considering the acquisition of some new labor-saving equipment. Management estimates that the equipment will cost $42,000 and will produce the following savings in cash operating costs during the next 5 years:

Year 1, $18,000;

Year 2, $13,000;

Year 3, $10,000;

Year 4, $10,000; and

Year 5, $6,000.

The company uses the net present value method to analyze investments and desires a minimum rate of return of 12%.

a. Compute the net present value of the proposed investment. Ignore income taxes and round to the nearest dollar.

b. Considering the time value of money , should Contempo acquire the new equipment? Why?

Reference no: EM131151213

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