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What is the npv to the nearest dollar

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A company is considering the purchase of equipment costing $84000 which will permit it to reduce its existing labour cost by $23000 each year for 6years. The company estimates that it will have to spend $2000 every two years overhauling the equipment. The equiment may be depreciated using straight line depreciation over 6 years for tax purposes. The company tax rate is 30 cents in the dollar and the after corporate tax cost of capital is 10% per annum.

Assume:

  1. Salvage value of zero.
  2. The outlay of $84000 occurs at time zero.
  3. All other cash flows including, tax payments and credits are made at the end of the year.
  4. No overhaul is required in year 6.

Problem 1: What is the NPV to the nearest dollar?

Reference no: EM132804599

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