Reference no: EM13510230

Connor Company is considering the purchase of new equipment for $182,000. The expected life of the equipment is 7 years with no residual value. The equipment is expected to earn revenues of $157,000 per year. Total expenses, including depreciation, are expected to be $130,000 per year. Connor management has set a minimum acceptable rate of return of 12%. Assume straight-line depreciation.

a. Determine the equal annual net cash flows from operating the equipment. Round to the nearest dollar.
$

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.353	2.991
6	4.917	4.355	4.111	3.785	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

b. Calculate the net present value of the new equipment using the present value of an annuity of $1 table above. Round to the nearest dollar.

Annual net cash flow:	$
Present value of equipment cash flows:	$
Less equipment costs:	$
Net present value of equipment:	$

c. Does your analysis support the purchase of the new equipment?

SelectYesNoItem 6

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