Answered: The net present value if the equipment…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 4P

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JPIA Manufacturing has an investment opportunity to embark on a project where yearly revenues for five years are to be P400,000 and operating costs of P104,800. The equipment costs P850,000, and straight-line depreciation will be used for book and tax purposes. No salvage value is expected at the end of the project’s life. The company has a 40 percent marginal tax rate and a 10 percent cost of capital. The equipment manufacturer has offered a delayed payment plan of P560,500 per year at the end of the first and second years. There will be no changes in working capital. The present value of annuity of 1 for 5 periods is 3.7908 at 10 percent. The present values of 1 end of each period at 10 percent are: Period 1 0.9091;Period 2 0.8264;Period 3 0.7513;Period 4 0.6830;Period 5 0.6209. The net present value if the equipment were purchased is?

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