Question

Eon Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $915,000. Projected net cash inflows are as follows: (Click the icon to view the projected net cash inflows.) (Click the icon to view Present Value of $1 table.) 3 (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Read the requirements. Requirement 1. Compute this project's NPV using Eon's 16% hurdle rate. Should Eon invest in the equipment? Use the following table to calculate the net present value of the project. (Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.) Present Net Cash Inflow PV Factor (i = 16%) i Data Table Years Value Present value of each year's inflow: = (n = 1) N 5 Year 1 $ Year 2 5 Year 3 5 265,000 250,000 224,000 210,000 200,000 178,000 ch (n = 5) Year 4 Year 5 Year 6 o (n = 6) Total PV of cash inflows Initial investment Print Done Net present value of the project Enter any number in the edit fields and then continue to the next question.

Answer 1

Requirement 1:

Years		Net Cash Inflow ($)	PV Factor (i=16%)	Present Value ($)
1	n=1	265,000	0.862	228,430
2	n=2	250,000	0.743	185,750
3	n=3	224,000	0.641	143,584
4	n=4	210,000	0.552	115,920
5	n=5	200,000	0.476	95,200
6	n=6	178,000	0.410	72,980
	Total PV of Cash Inflows			841,864
0	Initial Investment			(915,000)
	Net Present Value of Project			(73,136)

Eon Industries should not invest in the equipment. [Since, the Net Present Value is negative]

Requirement 2: