Determine the net present value of purchasing

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Reference no: EM13135603

Bravo Baking Co is considering replacing an older freezer with a larger unit to freeze some of its bread. The new unit has a larger capacity and Bravo estimates it can produce and sell more read each year. From these additional sales the annual after-tax cash flow is expected to be $4,000. In additions to more sales the new freezer will save $1,200 in electricity each year. However, the new freezer will cost and additional $2,000 each year for maintenance. The cost of the new unit is $25,000 and it is expected to last 10 years. The salvage value at the end of its life is $6,000. The old unit is fully depreciated and can be disposed at cost. Determine the Net Present Value of purchasing the new freezer using a required rate of return of 14%. Should bravo purchase the freezer?

Reference no: EM13135603

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