ampla Requirements 1. Compute this project's NPV using Eve's 14% hurdle rate. Should Eve invest in the equipment? 2. Eve could refurbish the equipment at the end of six years for $103,000. The refurbished equipment could be used one more year, providing $73,000 of net cash inflows in year 7. Additionally, the refurbished equipment would have a $51,000 residual value at the end of year 7. Should Eve invest in the equipment and refurbish it after six years? (Hint: In addition to your answer to Requirement 1, discount the additional cash outflow and inflows back to the present value.) Get more help Print - X Done
ampla Requirements 1. Compute this project's NPV using Eve's 14% hurdle rate. Should Eve invest in the equipment? 2. Eve could refurbish the equipment at the end of six years for $103,000. The refurbished equipment could be used one more year, providing $73,000 of net cash inflows in year 7. Additionally, the refurbished equipment would have a $51,000 residual value at the end of year 7. Should Eve invest in the equipment and refurbish it after six years? (Hint: In addition to your answer to Requirement 1, discount the additional cash outflow and inflows back to the present value.) Get more help Print - X Done
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 4P
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Question
Transcribed Image Text:Eve Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $930,000. Projected net cash inflows are as follows:
(Click the icon to view the projected net cash inflows.)
(Click the icon to view Present Value of $1 table.)
Read the requirements.
Requirement 1. Compute this project's NPV using Eve's 14% hurdle rate. Should Eve invest in the equipment?
Use the following table to calculate the net present value of the project. (Enter any factor amounts to three decimal places, X.XXX.
PV Factor (i
= 14%)
Years
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Present value of each year's inflow: (n = 1)
Present value of each year's inflow: (n = 2)
Present value of each year's inflow: (n = 3)
Present value of each year's inflow: (n=4)
Present value of each year's inflow: (n = 5)
Present value of each year's inflow: (n = 6)
Total PV of cash inflows
Year 0 Initial investment
Net present value of the project
example
Data table
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Print
Get more help.
$
262,000
254,000
224,000
212,000
204,000
173,000
(Click the icon to view Present Value of Ordinary Annuity of $1 table.)
Done
Net Cash
Inflow
Present Value
Reference
Periods
Period 1
Period 2
Period 3
Period 4
Period 5
Period 6
Period 7
Period 8
Period 9
Period 10
Period 11
Period 12
Period 13
Period 14
Period 15
Period 16
Period 17
Period 18
Period 19
Period 20
Period 21
Period 22
Period 23
Period 24
Period 25
Period 26
Period 27
Period 28
Period 29
Period 30
Period 40
Period 50
Present Value of Ordinary Annuity of $1
4% 5% 6% 7% 8% 9% 10% 12% 14% 15% 16% 18% 20%
0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.870 0.862 0.847 0.833
1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.690 1.647 1.626 1.605 1.566 1.528
2.775 2.723 2.67: 2.624 2.577 2.531 2.487 2.403 2.322 2.283 2.246 2.174 2.106
3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 2.855 2.798 2.690 2.589
4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.352 3.274 3.127 2.991
5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.111 3.889 3.784 3.685 3.498 3.326
6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 4.160 4.039 3.812 3.605
7.652 7.325 7.020 6.733
6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.487 4.344 4.078 3.837
8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.328 4.946 4.772 4.607 4.303 4.031
9.471 8.983 8.530
8.111
7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 5.019
4.833 4.494 4.192
10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.938 5.453 5.234 5.029 4.656 4.327
11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.660 5.421 5.197 4.793 4.439
12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.424 5.842 5.583 5.342 4.910 4.533
13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.628 6.002 5.724 5.468 5.008 4.611
13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 6.811 6.142 5.847 5.575 5.092 4.675
1% 2%
0.990 0.980
1.970 1.942
2.941
2.884
3.902 3.808
4.853 4.713
3%
0.971
1.913
2.829
3.717
4.580
14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 6.974 6.265 5.954 5.669 5.162 4.730
15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.120 6.373 6.047 5.749 5.222 4.775
16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.250 6.467 6.128 5.818 5.273 4.812
17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.366 6.550 6.198 5.877 5.316 4,844
18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.469 6.623 6.259 5.929 5.353 4.870
18.857 17.011 15.415 14.029 12.821 11.764 10.836 10.017 9.292 8.649 7.562 6.687 6.312 5.973 5.384 4.891
19.660 17.658 15.937 14.451 13.163 12.042 11.061 10.201 9.442 8.772 7.645 6.743 6.359 6.011 5.410 4.909
20.456 18.292 16.444 14.857 13.489 12.303 11.272 10.371 9.580 8.883 7.718 6.792 6.399 6.044 5.432 4.925
21.243 18.914 16.936 15.247 13.799 12.550 11.469 10.529 9.707 8.985 7.784 6.835 6.434 6.073 5.451 4.937
22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 7.843 6.873 6.464 6.097 5.467 4.948
22.795 20.121 17.877 15.983 14.375 13.003 11.826 10.810 9.929 9.161 7.896 6.906 6.491 6.118 5.480 4.956
23.560 20.707 18.327 16.330 14.643 13.211 11.987 10.935 10.027 9.237 7.943 6.935 6.514 6.136 5.492 4.964
24.316 21.281 18.764 16.663 14.898 13.406 12.137 11.051 10.116 9.307 7.984 6.961 6.534 6.152 5.502 4.970
25.066 21.844 19.188 16.984 15.141 13.591 12.278 11.158 10.198 9.370 8.022 6.983 6.551 6.166 5.510 4.975
25.808 22.396 19.600 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.055 7.003 6.566 6.177 5.517 4.979
32.835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.244 7.105 6.642
39.196 31.424 25.730 21.482 18.256 15.762 13.801 12.233 10.962 9.915
8.304 7.133 6.661
Print
Done
6.233 5.548 4.997
6.246 5.554 4.999
X
Transcribed Image Text:Eve Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $930,000. Projected net cash inflows are as follows:
(Click the icon to view the projected net cash inflows.)
(Click the icon to view Present Value of $1 table.)
Read the requirements.
Requirement 1. Compute this project's NPV using Eve's 14% hurdle rate. Should Eve invest in the equipment?
Use the following table to calculate the net present value of the project. (Enter any factor amounts to three decimal places, X.XXX
Net Cash
Inflow
PV Factor (i
= 14%)
Years
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Present value of each year's inflow: (n = 1)
Present value of each year's inflow: (n = 2)
Present value of each year's inflow: (n = 3)
Present value of each year's inflow: (n = 4)
Present value of each year's inflow: (n = 5)
Present value of each year's inflow: (n = 6)
Total PV of cash inflows
Year 0 Initial investment
Net present value of the project
s example
Requirements
(Click the icon to view Present Value of Ordinary Annuity of $1 table.)
1.
Compute this project's NPV using Eve's 14% hurdle rate. Should Eve invest
in the equipment?
Get more help.
2. Eve could refurbish the equipment at the end of six years for $103,000. The
refurbished equipment could be used one more year, providing $73,000 of net
cash inflows in year 7. Additionally, the refurbished equipment would have a
$51,000 residual value at the end of year 7. Should Eve invest in the
equipment and refurbish it after six years? (Hint: In addition to your answer to
Requirement 1, discount the additional cash outflow and inflows back to the
present value.)
Print
Present Value
Done
X
Reference
Periods
Period 1
Period 2
Period
Period 4
Period 5
Period 6
Period 7
Period
Period 9
Period 10
Period 11
Period 12
Period 13
Period 14
Period 15
Period 16
Period 17
Period 18
Period 19
Period 20
Period 21
Period 22
Period 23
Period 24
Period 25
Period 26
Period 27
Period 28
Period 29
Period 30
Period 40
Period 50
Present Value of $1
12% 14% 15% 16% 18% 20%
0.961 0.924 0.888 0.855 0.823 0.792 0.763
0.951 0.906 0.863 0.822 0.784 0.747 0.713
0.942 0.888
0.933 0.871
0.923 0.853
0.914 0.837
0.905 0.820
0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.287 0.237 0.215 0.195 0.162 0.135
0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.257 0.208 0.187 0.168 0.137 0.112
0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.229 0.182 0.163 0.145 0.116 0.093
0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.205 0.160 0.141 0.125 0.099 0.078
0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.183 0.140 0.123 0.108 0.084 0.065
1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.870 0.862 0.847 0.833
0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.797 0.769 0.756 0.743 0.718 0.694
0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.712 0.675 0.658 0.641 0.609 0.579
0.735 0.708 | 0.683 0.636 0.592 0.572 0.552 0.516 0.482
0.681 0.650 0.621 0.567 0.519 0.497 0.476 0.437 0.402
0.630 0.596 0.564 0.507 0.456 0.432 0.410 0.370 0.335
0.583 0.547 0.513 0.452 0.400 0.376 0.354 0.314 0.279
0.540 0.502 0.467 0.404 0.351 0.327 0.305 0.266 0.233
0.500 0.460 0.424 0.361 0.308 0.284 0.263 0.225 0.194
0.463 0.422 0.386 0.322 0.270 0.247 0.227 0.191 0.162
0.837 0.790 0.746 0.705 0.666
0.813 0.760 0.711 0.665 0.623
0.789 0.731 0.677 0.627 0.582
0.766 0.703 0.645 0.592 0.544
0.744 0.676 0.614 0.558 0.508
0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.163 0.123 0.107 0.093 0.071 0.054
0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.146 0.108 0.093 0.080 0.060 0.045
0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.130 0.095 0.081 0.069 0.051 0.038
0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.116 0.083 0.070 0.060 0.043 0.031
0.820 0.673 0.554 0.456 0.377 0.312 0.258
0.215
0.178 0.149 0.104 0.073 0.061 0.051 0.037 0.026
0.199 0.164 0.135 0.093 0.064 0.053 0.044 0.031 0.022
0.184 0.150 0.123 0.083 0.056 0.046 0.038 0.026 0.018
0.170 0.138 0.112 0.074 0.049 0.040 0.033 0.022 0.015
0.158 0.126 0.102 0.066 0.043 0.035 0.028 0.019 0.013
0.146 0.116 0.092 0.059 0.038 0.030 0.024 0.016 0.010
0.811 0.660 0.538 0.439 0.359 0.294 0.242
0.803 0.647 0.522 0.422 0.342 0.278 0.226
0.795 0.634 0.507 0.406 0.326 0.262 0.211
0.788 0.622 0.492 0.390 0.310 0.247 0.197
0.780 0.610 0.478 0.375 0.295 0.233 0.184
0.772 0.598 0.464 0.361 0.281 0.220 0.172 0.135 0.106 0.084 0.053 0.033 0.026 0.021 0.014 0.009
0.764 0.586 0.450 0.347 0.268 0.207 0.161 0.125 0.098 0.076 0.047 0.029 0.023 0.018 0.011 0.007
0.757 0.574 0.437 0.333 0.255 0.196 0.150 0.116 0.090 0.069 0.042 0.026 0.020 0.016 0.010 0.006
0.749 0.563 0.424 0.321 0.243 0.185 0.141 0.107 0.082 0.063 0.037 0.022 0.017 0.014 0.008 0.005
0.742 0.552 0.412 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.033 0.020 0.015 0.012 0.007 0.004
0.672 0.453 0.307 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.011 0.005 0.004 0.003 0.001 0.001
0.021 0.013 0.009 0.003 0.001 0.001 0.001
0.608 0.372 0.228 0.141 0.087 0.054 0.034
Print
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