Answered: The management of Fine Electronics…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 10PA: The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000,...

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Question: The management of Fine Electronics Company is considering to purchase an equipment to be attached with the main manufacturing machine. The equipment will cost $6,000 and will increase annual cash inflow by $2,200. The useful life of the equipment is 6 years. After 6 years it will have no salvage value. The management wants a 20% return on all investments.

Required:

Compute net present value (NPV) of this investment project.
Should the equipment be purchased according to NPV analysis?

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