Hello,Cowboy recording studio is considering the investment of $142,700 in a new recording equipment.  It is estimated that the new equipment will generate additional cash flow of $21,000 per year for each year of its 7-year life and will have a salvage value of $13,500 at the end of its life.  Cowboy's financial managers estimate that the firm's cost of capital is 8%.  (Use the appropriate factor(s) from the tables provided (present value and annuity tables were given).  Round the PV factors to 4 decimal places).Question a.  Calculate the net present value of the investment.  Negative numbers need a minus sign, do not round intermediate calculations.Net present value: ???Question b.  Calculate the present value ratio of the investment.  Round your answer to 2 decimal places.Present value ratio: ???thanks...

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Asked Apr 14, 2019
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Hello,

Cowboy recording studio is considering the investment of $142,700 in a new recording equipment.  It is estimated that the new equipment will generate additional cash flow of $21,000 per year for each year of its 7-year life and will have a salvage value of $13,500 at the end of its life.  Cowboy's financial managers estimate that the firm's cost of capital is 8%.  (Use the appropriate factor(s) from the tables provided (present value and annuity tables were given).  Round the PV factors to 4 decimal places).

Question a.  Calculate the net present value of the investment.  Negative numbers need a minus sign, do not round intermediate calculations.

Net present value: ???

Question b.  Calculate the present value ratio of the investment.  Round your answer to 2 decimal places.

Present value ratio: ???

thanks...

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Expert Answer

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Step 1

Step  1:

Calculation of the present value factor of annuity:

Note:  while calculating the present value factor and the present value factor of annuity the term “r” and “n” denotes:

  • r = Cost of the capital (8%)
  • n= Life of an asset (7 year life)
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Step 2

Step 2:

Calculation of the present value factor:

Note:  while calculating the present value factor and the present value factor of annuity the term “r” and “n” denotes:

  • r = Cost of the capital (8%)
  • n= Life of an asset (7 year life)

 

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Step 3

Step 3:

Calculation of the present valu...

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