Grady Corporation is considering the purchase of a new piece of equipment. The equipment costs $50,100 and will have a salvage value of $5,090 after 9 years. Using the new piece of equipment will increase Grady's annual net cash flows by $6,080. Grady's cost of capital is 11%. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1) Note: Use appropriate factor from the PV tables. Required: a. What is the present value of the increase in annual cash flows? b. What is the present value of the salvage value?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
icon
Concept explainers
Topic Video
Question
Grady Corporation is considering the purchase of a new piece of equipment. The equipment costs $50,100 and will have a salvage
value of $5,090 after 9 years. Using the new piece of equipment will increase Grady's annual net cash flows by $6,080. Grady's cost
of capital is 11%. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1)
Note: Use appropriate factor from the PV tables.
Required:
a. What is the present value of the increase in annual cash flows?
b. What is the present value of the salvage value?
c. What is the net present value of the equipment purchase?
d. Based on financial factors, should Grady purchase the equipment?
Complete this question by entering your answers in the tabs below.
Required A
Required B Required C Required D
What is the present value of the increase in annual cash flows?
Note: Round answer to the nearest whole dollar.
Present Value
< Required A
Required B >
Transcribed Image Text:Grady Corporation is considering the purchase of a new piece of equipment. The equipment costs $50,100 and will have a salvage value of $5,090 after 9 years. Using the new piece of equipment will increase Grady's annual net cash flows by $6,080. Grady's cost of capital is 11%. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1) Note: Use appropriate factor from the PV tables. Required: a. What is the present value of the increase in annual cash flows? b. What is the present value of the salvage value? c. What is the net present value of the equipment purchase? d. Based on financial factors, should Grady purchase the equipment? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D What is the present value of the increase in annual cash flows? Note: Round answer to the nearest whole dollar. Present Value < Required A Required B >
Expert Solution
steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Capital Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education