Question

Dupree Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $915,000. Projected net cash inflows are as?follows

Year 1	$260,000
Year 2	253,000
Year 3	227,000
Year 4	211,000
Year 5	203,000
Year 6	177,000

Requirments

1. Compute this? project's NPV using duprees 16?% hurdle rate. Should Duprees invest in the? equipment?

2. Dupree could refurbish the equipment at the end of six years for $104,000. The refurbished equipment could be used one more? year, providing $78,000 of net cash inflows in year 7.? Additionally, the refurbished equipment would have a $50,000 residual value at the end of year 7. Should duprees 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.)

Present Value of? $1
Periods	?1%	?2%	?3%	?4%	?5%	?6%	?7%	?8%	?9%	?10%	?12%	?14%	?15%	?16%	?18%	?20%
1	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
2	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
3	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
4	0.961	0.924	0.888	0.855	0.823	0.792	0.763	0.735	0.708	0.683	0.636	0.592	0.572	0.552	0.516	0.482
5	0.951	0.906	0.863	0.822	0.784	0.747	0.713	0.681	0.650	0.621	0.567	0.519	0.497	0.476	0.437	0.402
6	0.942	0.888	0.837	0.790	0.746	0.705	0.666	0.630	0.596	0.564	0.507	0.456	0.432	0.410	0.370	0.335
7	0.933	0.871	0.813	0.760	0.711	0.665	0.623	0.583	0.547	0.513	0.452	0.400	0.376	0.354	0.314	0.279
8	0.923	0.853	0.789	0.731	0.677	0.627	0.582	0.540	0.502	0.467	0.404	0.351	0.327	0.305	0.266	0.233
9	0.914	0.837	0.766	0.703	0.645	0.592	0.544	0.500	0.460	0.424	0.361	0.308	0.284	0.263	0.225	0.194
10	0.905	0.820	0.744	0.676	0.614	0.558	0.508	0.463	0.422	0.386	0.322	0.270	0.247	0.227	0.191	0.162
11	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
12	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
13	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
14	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
15	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
16	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
17	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
18	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
19	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
20	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
21	0.811	0.660	0.538	0.439	0.359	0.294	0.242	0.199	0.164	0.135	0.093	0.064	0.053	0.044	0.031	0.022
22	0.803	0.647	0.522	0.422	0.342	0.278	0.226	0.184	0.150	0.123	0.083	0.056	0.046	0.038	0.026	0.018
23	0.795	0.634	0.507	0.406	0.326	0.262	0.211	0.170	0.138	0.112	0.074	0.049	0.040	0.033	0.022	0.015
24	0.788	0.622	0.492	0.390	0.310	0.247	0.197	0.158	0.126	0.102	0.066	0.043	0.035	0.028	0.019	0.013
25	0.780	0.610	0.478	0.375	0.295	0.233	0.184	0.146	0.116	0.092	0.059	0.038	0.030	0.024	0.016	0.010
26	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
27	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
28	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
29	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
30	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
40	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
50	0.608	0.372	0.228	0.141	0.087	0.054	0.034	0.021	0.013	0.009	0.003	0.001	0.001	0.001	0.000	0.000

Present Value of Annuity of? $1
Periods	?1%	?2%	?3%	?4%	?5%	?6%	?7%	?8%	?9%	?10%	?12%	?14%	?15%	?16%	?18%	?20%
1	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
2	1.970	1.942	1.913	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
3	2.941	2.884	2.829	2.775	2.723	2.673	2.624	2.577	2.531	2.487	2.402	2.322	2.283	2.246	2.174	2.106
4	3.902	3.808	3.717	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
5	4.853	4.713	4.580	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
6	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
7	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
8	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
9	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
10	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
11	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
12	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
13	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
14	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
15	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
16	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	5.668	5.162	4.730
17	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
18	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
19	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	4.843
20	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
21	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
22	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
23	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
24	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
25	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
26	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
27	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
28	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
29	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
30	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
40	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	6.233	5.548	4.997
50	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	6.246	5.554	4.999

Answer 1

Req 1
Year	Cash inflows	PVF @ 16%	Present values
0	-915000	1	-915000
1	260000	0.862	224120
2	253000	0.743	187979
3	227000	0.641	145507
4	211000	0.552	116472
5	203000	0.476	96628
6	177000	0.41	72570
Present worth			-71724
No, Dupress should not invest in the project.
Req 2:
Case-Refurbishment at the end of 6th year
Present value (as computed above)				-71724
Less: Present value of Refurbishment				-42640
	(104000*0.41)
Add: Present of cash inflows				45312
	(50000+78000)*0.354
Net present worth				-69052
No Investment shall not be made.