Solution-Compute this projects npv using sprockets 16

Compute this projects npv using sprockets 16 hurdle rate

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Reference no: EM13483835

Using discounted cash flow models to make capital investment decisions

Sprocket Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $905,000. Projected net cash inflows are as follows:

Year 1	$260,000
Year 2	$254,000
Year 3	$225,000
Year 4	$215,000
Year 5	$205,000
Year 6	$173,000

Requirements

1. Compute this project's NPV using Sprocket's 16% hurdle rate. Should Sprocket invest in the equipment?

2. Sprocket could refurbish the equipment at the end of six years for $103,000. The refurbished equipment could be used one more year, providing $75,000 of net cash inflows in year 7. Additionally, the refurbished equipment would have a $54,000 residual value at the end of year 7. Should Sprocket invest in the equipment and refurbishing it after six years?

Reference no: EM13483835

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Compute this projects npv using sprockets 16 hurdle rate

Reference no: EM13483835

Reference no: EM13483835

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