Question

XYZ Company is considering the purchase of a new piece of equipment and has gathered the following information about the purchase: Initial investment ........ Annual cost savings Salvage value in 6 years .. Repair in 4 years ....... Cost of capital Life of project .. $20,000 20% of original cost of the equipment $14,000 10% 6 years The net present value of this new equipment was -$37,779. Calculate the salvage value for this piece of equipment. You will need to use the time value of money table factors posted in carmen to answer this question. To access these factors, click modules and then scroll to week 8. Click on the link labeled present & future value table factors. No credit will be awarded for this question using a means other than these table factors to answer this question.

Answer 1

Year Cash Flows Pv@10% Pv of Cash Flows 1.0000 20000 0.9091 18181.82 20000 0.8264 16528.93 20000 0.7513 15026.30 420000-14000 6000 0.6830 4098.08 20000 0.6209 12418.43 20000+0.2x 0.5645 (20000+0.2x) *0.5645 NPV -37779 WIN II 1 1 Net Present Value -37779 -37779 -37779 -115322.55 129999.49 Approx 130000 Pv of Cash inflows-Pv of cash outflows 66253.55+(20000*0.5645+0.2x*0.5645) - 66253.55+11290+0.1129x-X 77543.55-0.8871x (0.8871x) Initial Investment 1 1 1 Salvage Value 0.2x 0.2*129999.49 25999.90