Alcorn Company Is Considering Purchasing Equipment That Costs $400,000

question 135

Essay

Alcorn Company is considering purchasing equipment that costs $400,000.The equipment has an estimated useful life of 8 years and no salvage value.Alcorn believes that the annual cash inflows from using the equipment will be $80,000.
(PV of $1 and PVA of $1)(Use appropriate factor(s)from the tables provided.)
Required:
1)Calculate the net present value of the equipment assuming that Alcorn's cost of capital is 12%.Is the equipment an acceptable investment?
2)Calculate the net present value of the equipment assuming that Alcorn's cost of capital is 10%.Is the equipment an acceptable investment?
3)What general conclusion can you reach from your results to parts 1)and 2)?

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Definitions:

Horizontal Bars

Apparatus used in gymnastics consisting of a metal bar fixed at a certain height above the ground, enabling athletes to perform exercises.

Chronological Order

A method of arranging events or information in the sequence of their occurrence in time, from the earliest to the latest.

Cropped

Edited or altered by cutting out parts, especially in the context of images or photos, to focus on a particular aspect or to fit a certain size.

Trimmed

The removal of excess parts or edges to improve appearance, function, or efficiency; often used in the context of data, landscaping, or grooming.