Question

Check my work please.

Marti Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $930,000. 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.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Read the requirements Requirement 1. Compute this project's NPV using Marti's 16% hurdle rate. Should Marti 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.) Net Cash PV Factor Present Years Inflow (i = 16%) Value Data Table Present value of each year's inflow: 1 (n = 1) 862 226706 2 263,000 253,000 223,000 .743 187979 Year 1 $ (n = 2) (n = 3) 263,000 3 641 142943 Year 2 253,000 4 (n = 4) 214,000 552 118128 Year 3 223,000 5 (n = 5) 200,000 476 Year 4 214,000 95,200 72,980 6 178,000 (n = 6) 410 Year 5 200,000 Total PV of cash inflows 843936 Year 6 178,000 0 930000 Initial investment Net present value of the project (86064) Print Done

Answer 1

REQUIREMENT 1. IN GIVEN QUESTION THE COST OF EQUIPMENT IS $ 930000/- AND LIFE OF ASSET IS FOR 6 YEARS

TO CALCULATE NET PRESENT VALUE FIRST WE NEED TO OBTAIN THE VALUE OF CASH INFLOWS FOR EACH YEAR.

FORMULA FOR NET CASH INFLOW = TOTAL CASH INFLOWS- TOTAL CASH OUTFLOWS

ASSUMING THE ABOVE MENTIONED AMOUNTS ARE CORRECT

FORMULA FOR CALCULATING NET PRESENT VALUE(NPV)= NET CASH INFLOW

PV FACTOR

PV FACTOR = 16%

PRESENT VALUE OF C.F = 843936

COST OF EQUIPMENT= (930000)

NET PRESENT VALUE = (86064)

SINCE THE ANSWER OBTAINED IS NEGATIVE IT IS BETTER NOT TO INVEST IN THE EQUIPMENT

AND THE ANSER PROVIDED ABOVE IS CORRECT.