Should the equipment be purchased and why

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Reference no: EM133012625

Problem 1: Your firm is contemplating whether or not to purchase an equipment that would help enhance efficiency in the production department. The cost of the equipment is $15,000. The equipment will increase annual cash inflow by ($4,500), $7,500 and $8,500 for the first three years respectively, thereafter its annual cash inflow will grow by 18 percent. The estimated useful life of the equipment is 5 years, after which it will have zero salvage value. The company's management desires a 5% return on all its investment. Required: on the basis of the Net Present Value (NPV) analysis, should the equipment be purchased?

Reference no: EM133012625

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