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(Present Value Tables Are Needed -Sommer Corporation's Hurdle Rate Is 12

question 79

Multiple Choice

(Present value tables are needed.) Sommer Corporation is deciding whether to automate one phase of its production process.The equipment has a six-year life and will cost $410,000.Projected net cash inflows from the equipment are as follows: $\begin{array} { | c | c | } \hline \text { Year 1 } & \$ 115,000 \\\hline \text { Year 2 } & \$ 100,000 \\\hline \text { Year } \mathbf { 3 } & \$ 110,000 \\\hline \text { Year 4 } & \$ 100,000 \\\hline \text { Year } \mathbf { 5 } & \$ 95,000 \\\hline \text { Year 6 } & \$ 90,000 \\\hline\end{array}$
-Sommer Corporation's hurdle rate is 12%.
If Sommer Corporation decides to refurbish the equipment at a cost of $50,000 at the end of year 6,it could be used for one more year and would have a $30,000 residual value at the end of year 7.Assume the cash inflow in year 7 is $65,000.What is the NPV of just the refurbishment?

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