Question

Exercise 9-5 Bridgeport Industries is considering the purchase of new equipment costing $1,235,000 to replace existing equipment that will be sold for $180,700. The new equipment is expected to have a $204,000 salvage value at the end of its 7-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 30,900 units annually at a sales price of $27 per unit. Those units will have a variable cost of $13 per unit. The company will also incur an additional $94,700 in annual fixed costs. Click here to view the factor table. Calculate the present value of each cash flow assuming an 7% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971. Enter negative amounts using a negative sign preceding the number e.g. -58,971 or parentheses e.g. (58,971).) Cash Flow Present Value Purchase of new equipment $ Salvage of old equipment Sales revenue Variable costs Additional fixed costs Salvage of new equipment

Answer 1

Calculate present value

Cash flow	Present value
Purchase of new equipment	-1235000
Salvage of old equipment	180700
sales revenue (5.3893*834300)	4496293
Variable cost (401700*5.3893)	-2164882
Additional fixed cost (94700*5.3893)	-510367
Salvage of new equipment (204000*.6228)	127051