Question

A company is thinking about purchasing a new piece of equipment and I need to conduct an NPV or net present value analysis to determine if it is a good option or not for the company. The problem is set up very differently than what I have seen in class for practice. Could you please help me? I don't really have an idea of what to do since it's completely different, otherwise, I would have an idea of what to do. I really appreciate your help! Thank you very much! You may need to zoom in for this question to see the numbers and information

Cash Inflows Cash Outflows Net Cash Flow Initial Investment Year 1 Year 2 Year 3 Year 4 Year 5 Norris Company is thinking about purchasing a new piece of equipment. Conduct an NPV Analysis to determine if this is a viable option for Norris Company. Discount Rate New Equipment Installation Annual Increase in Contribution Margin Annual Maintenance Costs Salvage Value Equipment Useful Life Required Rate of Return (300.000) (20.000) 98,000 (10.000) 20,000 5 10% ***(Use the =NPV Function in Excel. Select the discount rate first, followed by the net cash flow amounts starting with year 1 through year 5.) Present Value of Future Cash Flows*** Initial Investment NPV Hint: You can check your work by using the tables. Should management purchase the new equipment?

Answer 1

Particulars	Cash Inflow	Cash Outflow	Net Cash Flow	PV @ 10%
Initial Investment		3,20,000	-3,20,000	-3,20,000.00
Year 1	98,000	10,000	88,000	80,000.00
Year 2	98,000	10,000	88,000	72,727.27
Year 3	98,000	10,000	88,000	66,115.70
Year 4	98,000	10,000	88,000	60,105.18
Year 5	1,18,000	10,000	1,08,000	67,059.50
Net Present Value				26,007.65

Yes, as NPV is positive, the manager should purchase the equpiment.