Equipment desirable on net present-value basis

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Reference no: EM131845396

A company is planning to buy equipment costing €120 000 to improve its materials handling system. The equipment is expected to save €40 000 in cash-operating costs per year. Its estimated useful life is six years, and it will have zero terminal disposal value. The required rate of return is 14 %.

A) Calculate the net present value.

B) What is the minimum annual cash savings that will make the equipment desirable on a net present-value basis?

C) When might a manager calculate the minimum annual cash savings described in requirement B rather than use the €40 000 savings in cash-operating costs per year to calculate the net present value

Reference no: EM131845396

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