Major Corp

question 109

Essay

Major Corp.is considering the purchase of a new piece of equipment.The cost savings from the equipment would result in an annual increase in cash flow of $100,000.The equipment will have an initial cost of $500,000 and have an 8-year life.The equipment has no salvage value.The hurdle rate is 8%.Ignore income taxes.Answer the following:
a.What is the net present value?
b.What would the net present value be with a 12% hurdle rate?
c.Based on the NPV calculations,in what range would the equipment's internal rate of return fall?

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