Newport Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $220,000. The equipment will have an initial cost of $968,000 and have a 6-year life. There is no salvage value for the equipment. If the hurdle rate is 8%, what is the approximate net present value? Ignore income taxes. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor from the PV tables. Round your final answer to the nearest dollar amount.)

Respuesta :

Answer:

$49,060

Explanation:

We can use the following formula, to calculate the net present value of the project:

Net Present Value

= Annual Cash inflows * Annuity Factor at 8% for 6 Years -  Investment

Here

Annual Cash inflow is $220,000

r is 8%

Annuity factor = (1- (1+r)^-n)  / r   =  (1 - (1 + 8%)^-6) / 8%  = 4.623

Investment is $968,000

Net Present Value = $220,000 * 4.623 - $968,000

= $49,060