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Present value tables are required.) Karpets Industries is investing in a new high-speed loom for weaving...

Present value tables are required.) Karpets Industries is investing in a new high-speed loom for weaving its rugs and carpets. The new loom will have a useful life of 7 years and cost $80,000. The loom's residual value is $5,000. Assume that Karpets requires a return of 10% and that the loom will create annual cost savings of $16,250. What is the net present value (NPV) of the new loom?

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Answer #1

Ans:

Annual Cost Savings

= $ 16250

PV of Annuity

= 4.868

Net Present Value

PV of Annual Cost Savings (16250*4.868)

79105

PV of Residual Value (5000*0.513)

2565

Total PV

81670

Less : Cost

80000

NPV

1670
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