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Grady Corp. is considering the purchase of a new piece of equipment.
The equpiment costs $50,000. Using the new piece of equipment shoud increase Grady's annual cash flows for the next 4 years as follows:
Year1- $8,000
Year2- $10,000
Year3-$15,000
Year4-$20,000
Grady has a hurdle rate of 7%.
A) What is the present value of the increase in annual cash flow? (Show your work)
B) What is the net present value of equipment purchase?
C) Based on the financial factors, should Grady purchase the equipment? Why?
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