The owners of the Nona Brick Oven are considering an investment in a conveyor oven costing $10,493. The oven is expected to last for 15 years and would need an upgrade costing $3,500 in year 7. The owners assumed that items baked in the oven would add $350 per month in additional net cash flows. Calculate the net present value of the investment using a target rate of return of 10%.
$32,570.10
$1,743.10
$20,334.00
$30,827.00
C.$20,334.00
let us know the present value of upgrade cost year 7:
$3500 * 1 /(1+r)^n
=> r = 10% * 1/12
=>0.83333%
=>0.008333
r = 7 years * 12 =>84 months.
=>$3500* 1/(1.008333)^84
=>3500*0.4980416
=>$1743.1456.
present value of cash out flows will be = $10,493 + 1743.1456
=>$12,236.1456.
present value of cash inflows = A*[1- (1+r)^(-n)]/r
here,
A = 350
r=10% *1/12
=>0.83333%
=>0.008333
n=15 years*12
=>180 months.
=>350*[1-(1.008333)^(-180)]/0.008333
=>93.0595584
present value of inflows = 350*93.0595584
=>$32,570.84544.
net present value = 32,570.84544-12,236.1456
=>$20,334.70.
The owners of the Nona Brick Oven are considering an investment in a conveyor oven costing...
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