Fargo Corp

question 46

Essay

Fargo Corp.is considering the purchase of a new piece of equipment.The equipment costs $50,000 and will have a salvage value of $5,000 after nine years.Using the new piece of equipment will increase Fargo's annual cash flows by $6,000.Fargo has a hurdle rate of 12%.
a.How much is Fargo's annual depreciation on the equipment?
b.What is Fargo's projected annual increase in net income?
c.What is the accounting rate of return for purchasing the new piece of equipment?
d.Based on financial factors,should Fargo purchase the new equipment? Why or why not?

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Definitions:

Pounds

A unit of weight commonly used in the United States and the British imperial system, equal to 0.453592 kilograms.

Producer Surplus

The difference between the amount that producers are willing and able to sell a good for and the actual amount they receive.

Perfectly Inelastic

Describing a situation where the quantity demanded or supplied does not change regardless of changes in price.

Market Supply

The total quantity of a specific good or service that is available for purchase in the market by all suppliers at various price levels.