Calculate the net cost in pv terms of this equipment

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Reference no: EM131988416

Snootjoy Wines is considering the purchase of an automatic winepress for $160,000. The press will be operated for six years, after which it will be scrapped. At year 6 a scrap value of $20,000 will be received. Further, a major overhaul of the winepress will be required at year 3, at a cost of $10,000.

For tax purposes, 20% of the initial investment may be depreciated in each year for years 1 through 4, and 10% in years 5 and 6. The overhaul cost will be treated as SG&A. The tax rate is 35%, projected inflation rate is zero, and the OCC is 9%. Calculate the net cost in PV terms of this equipment purchase.

My teacher put the solution as PV = 114.0041 (I think his answer is in terms of thousands), but what are the steps to do this problem?

Reference no: EM131988416

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