Answered: Culver Industries is considering the…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 1P: Talbot Industries is considering launching a new product. The new manufacturing equipment will cost...

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Culver Industries is considering the purchase of new equipment costing $1,500,000 to replace existing equipment that will be sold for $100,000. The new equipment is expected to have a $210,000 salvage value at the end of its 5-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 25,000 units annually at a sales price of $44 per unit. Those units will have a variable cost of $22 per unit. The company will also incur an additional $80,000 in annual fixed costs.

Click here to view the factor table.

(a) Calculate the net present value of the proposed equipment purchase. Assume that Culver uses a 10% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971. Enter negative amount using a negative sign preceding the number e.g. -59,992 or parentheses e.g. (59,992).)

Net present value

$enter the net present value in dollars rounded to 0 decimal places

(b) Do you recommend that Culver Industries invest in the new equipment?

select an option

Culver Industries is considering the purchase of new equipment costing $1,500,000 to replace existing equipment that will be sold
for $100,000. The new equipment is expected to have a $210,000 salvage value at the end of its 5-year life. During the period of its
use, the equipment will allow the company to produce and sell an additional 25,000 units annually at a sales price of $44 per unit.
Those units will have a variable cost of $22 per unit. The company will also incur an additional $80,000 in annual fixed costs.
Click here to view the factor table.
(a) Calculate the net present value of the proposed equipment purchase. Assume that Culver uses a 10% discount rate. (For
calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to O decimal place, e.g. 58,971.
Enter negative amount using a negative sign preceding the number e.g. -59,992 or parentheses e.g. (59,992).)
Net present value
$
(b) Do you recommend that Culver Industries invest in the new equipment?

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