Question

ABC Company has gathered the following information related
to an investment in new equipment:

annual net cash inflows .......................   $ 38,230
initial investment ............................   $180,000
life of new equipment .........................   10 years
salvage value of new equipment in 10 year .....   $ 20,000
cost of capital ...............................   10%

If the new equipment is purchased, the old equipment that is
currently in use can be sold for $9,000. Assume an income tax
rate of 40%.

Calculate the after-tax net present value of the new equipment.

To answer this question use the present value table factors
given below. No credit will be awarded for this question
using a means other than the table factors given below to
answer this question.

Factors from the present value of a lump sum table for:

i = 10%
n = 6       n = 7       n = 8       n = 9       n = 10 
0.565       0.513       0.467       0.424       0.385


Factors from the present value of an annuity table for:

i = 10%
n = 6       n = 7       n = 8       n = 9       n = 10
4.355       4.868       5.335       5.759       6.500

Answer 1

Initial Cost=$1,80,000

Cost of Capital= 10%

Annual Cash Inflow= $38,230

Salvage=$20,000

Estimated Useful Life= 10 Years

Year	Cash Flow (Amount In $)	Discounted Factor @ 10%	Net Present Value (Amount In $)
0	-1,80,000	1	-1,80,000
1	38,230	0.9090	34,755
2	38,230	0.8264	31,595
3	38,230	0.7513	28,723
4	38,230	0.6830	26,112
5	38,230	0.6209	23,738
6	38,230	0.5645	21,579
7	38,230	0.5132	19,618
8	38,230	0.4665	17,835
9	38,230	0.4241	16,213
10	58,230	0.3855	22,450
Total			62,618

Hence the Net Present Value is $62,618.