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What is the npv to the nearest dollar

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Reference no: EM132685152

A company is considering the purchase of equipment costing $84000 which will permit it to reduce its existing labour cost by $23000 each year for 6years. The company estimates that it will have to spend $2000 every two years overhauling the equipment. The equiment may be depreciated using straight line depreciation over 6 years for tax purposes. The company tax rate is 30 cents in the dollar and the after corporate tax cost of capital is 10% per annum.

Assume:

  • Salvage value of zero.
  • The outlay of $84000 occurs at time zero.
  • All other cash flows including, tax payments and credits are made at the end of the year.
  • No overhaul is required in year 6.

Problem 1: What is the NPV to the nearest dollar?

Reference no: EM132685152

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