Question

# Sensitivity analysis: San Lucas Corporation San Lucas Corporation is considering investment in robotic machinery based upon...

Sensitivity analysis: San Lucas Corporation

San Lucas Corporation is considering investment in robotic machinery based upon the following estimates:

 Cost of robotic machinery \$4,000,000 Residual value 300,000 Useful life 10 years

a. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of \$700,000. Use the present value tables appearing in Exhibit 2 and 5 of this chapter.

Net present value \$

b. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of \$500,000, \$700,000, and \$900,000. Use the present value tables (Exhibit 2 and 5) provided in the chapter in determining your answer. If required, use the minus sign to indicate a negative net present value.

 Annual Net Cash Flow \$500,000 \$700,000 \$900,000 Net present value \$ \$ \$

c. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 10%. Round to the nearest dollar.

Annual Net Cash Flow \$

(a)

 Particulars Amount (\$) Present value of annual net cash flows \$4,301,500 Present value of residual value \$115,800 Total present value \$4,417,300 Amount to be invested (\$4,000,000) Net present value \$417,300

(b) Similar to above:

 Annual net cash flow \$ 500,000 \$ 700,000 \$900,000 Net Present Value -812,053.46 \$ 417,300 \$1,645,773.38

(c) minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 10% = 632,300 \$ each year

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