The Simple Office Equipment Company has offered to sell some new packaging equipment to the Chavez Company. The list price is $45,000, but Simple has agreed to allow a trade-in allowance of $14,000 on some old equipment. The old equipment was carried at a book value of $9,000 and could be sold outright for $8,000 cash. Cash-operating savings are expected to be $22,000 annually for the next 8 years. The required rate of return is 10%. The old equipment has a remaining useful life of 8 years. Both the old and the new equipment will have zero disposal values 8 years from now. (Click the icon to view the present value factor table.) Requirement (Click the icon to view the present value annuity factor table.) 1. Should Chavez buy the new equipment? Show your computations, using the NPV method. Ignore income taxes. (Enter the present value factor to four decimal places, "X.XXXX." Round dollar amounts the nearest whole number. Use a minus sign or parentheses for a negative net present value.) Present value of Ordinary Annuity of $1 Annual Cash Total Present at 8 years, 10% Inflow Value Net present value: Present value of annuity of equal annual net cash inflows Less: Initial investment Net present value Chavez should the equipment because the NPV is per year = Present Value of $1 Present Value of Ordinary Annuity of $1 Period 3% 4% 5% 1 .9709 .9615 2 .9426 6% 7% 8% 10% .9524 .9434 .9346 .9259 .9091 .9246 .9070 .8900 12% 14% 16% 18% 20% 25% Period 3% 4% 5% 6% 7% 8% 10% 12% 14% 3 .9151 .8890 .8638 .8396 4 8885 .8548 .8227 .7921 5 .8626 .8219 .7835 .7473 .7130 .6806 .8929 .8772 .8621 8734 .8573 .8264 .7972 .7695 .7432 .8163 .7938 .7513 .7118 .6750 .6407 .7629 .7350 .6830 .6209 .8475 .8333 .8000 .7182 .6944 .6400 .6086 .5787 5120 1 2 3 6355 5921 5523 5158 4823 4096 4 .5674 .5194 4761 .4371 .4019 3277 5 6 7 8 .7894 .7307 9 .7664 .7026 10 .7441 .6756 .8375 .7903 .7462 .7050 .6663 .6302 .5645 .8131 .7599 .7107 .6651 .6227 .5835 .5132 .6768 .6274 5820 .5403 4665 .6446 .5919 5439 .5002 .4241 .6139 .5066 4556 4104 .3704 .3349 2621 6 12 15 .5584 .5083 4632 .3855 .7014 .6246 .5568 4970 4440 .3971 .3186 .6419 5553 .4810 4173 3624 .3152 4523 .3996 3538 4039 3506 3050 3606 3075 2630 .3220 .2697 2267 .3139 2791 2097 2660 7 .2326 .1678 8 2255 1938.1342 .1911 1615 1074 2567 2076 .1685 1372 .1122 .0687 9 10 12 18 20 .5874 4936 .4155 3503 2959 .2502 .5537 4564 .3769 3118 2584 2145 25 28 .3335 2551 .1956 .1504 30 .3083 .2314 .1741 .1314 .1037 .0728 .0514 4776 .3751 .2953 2330 .1842 .1460 .0923 .0588 .0378 0245 4371 .1159 0693 0419 .0255 .0157 4120 .0994 .0573 .0334 .0196 0116 1486 2394 1827 .1401.1079 .0835 .0649 .0352 1799 1300 .0946 .0691 .0508 .0376 .0180 .0365 0261 .0115 15 18 20 .0160 .0105 .0038 25 .0097 .0061 .0019 28 .0070 .0042 .0012 30 .9709 .9615 .9524 .9434 .9346 .9259 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.4869 2.4018 2.3216 2.2459 2.1743 2.1065 1.9520 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.1699 3.0373 2.9137 2.7982 2.6901 2.5887 2.3616 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.7908 3.6048 3.4331 3.2743 3.1272 2.9906 2.6893 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.3553 4.1114 3.8887 3.6847 3.4976 3.3255 2.9514 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 4.8684 4.5638 4.2883 4.0386 3.8115 3.6046 3.1611 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.3349 4.9676 4.6389 4.3436 4.0776 3.8372 3.3289 7.7861 7.4353 7.1078 6.8017 6.5152 6.2469 5.7590 5.3282 4.9464 4.6065 4.3030 4.0310 3.4631 8.5302 8.1109 7.7217 7.3601 7.0236 6.7101 6.1446 5.6502 5.2161 4.8332 4.4941 4.1925 3.5705 9.9540 9.3851 8.8633 8.3838 7.9427 7.5361 6.8137 6.1944 5.6603 5.1971 4.7932 4.4392 3.7251 11.9379 11.1184 10.3797 9.7122 9.1079 8.5595 7.6061 6.8109 6.1422 5.5755 5.0916 4.6755 3.8593 13.7535 12.6593 11.6896 10.8276 10.0591 9.3719 8.2014 7.2497 6.4674 5.8178 5.2732 4.8122 3.9279 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 8.5136 7.4694 6.6231 5.9288 5.3527 4.8696 3.9539 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 9.0770 7.8431 6.8729 6.0971 5.4669 4.9476 3.9849 18.7641 16.6631 14.8981 13.4062 12.1371 11.0511 9.3066 7.9844 6.9607 6.1520 5.5016 4.9697 3.9923 19.6004 17.2920 15.3725 13.7648 12.4090 11.2578 9.4269 8.0552 7.0027 6.1772 5.5168 4.9789 3.9950 16% 18% 20% 25% .9091 .8929 .8772 8621 .8475 .8333 .8000 1.7355 1.6901 1.6467 1.6052 1.5656 1.5278 1.4400

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...
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Question
answer all blanks and chavez should (buy/not buy) the equipment because the NPV is (positive/negative)
The Simple Office Equipment Company has offered to sell some new packaging equipment to the Chavez Company. The list price is $45,000, but Simple has
agreed to allow a trade-in allowance of $14,000 on some old equipment. The old equipment was carried at a book value of $9,000 and could be sold outright for
$8,000 cash. Cash-operating savings are expected to be $22,000 annually for the next 8 years. The required rate of return is 10%. The old equipment has a
remaining useful life of 8 years. Both the old and the new equipment will have zero disposal values 8 years from now.
(Click the icon to view the present value factor table.)
Requirement
(Click the icon to view the present value annuity factor table.)
1. Should Chavez buy the new equipment? Show your computations, using the NPV method. Ignore income taxes.
(Enter the present value factor to four decimal places, "X.XXXX." Round dollar amounts the nearest whole number. Use a minus sign or parentheses for a negative
net present value.)
Present value of
Ordinary Annuity of $1
Annual Cash
Total Present
at 8 years, 10%
Inflow
Value
Net present value:
Present value of annuity of equal
annual net cash inflows
Less: Initial investment
Net present value
Chavez should
the equipment because the NPV is
per year
=
Transcribed Image Text:The Simple Office Equipment Company has offered to sell some new packaging equipment to the Chavez Company. The list price is $45,000, but Simple has agreed to allow a trade-in allowance of $14,000 on some old equipment. The old equipment was carried at a book value of $9,000 and could be sold outright for $8,000 cash. Cash-operating savings are expected to be $22,000 annually for the next 8 years. The required rate of return is 10%. The old equipment has a remaining useful life of 8 years. Both the old and the new equipment will have zero disposal values 8 years from now. (Click the icon to view the present value factor table.) Requirement (Click the icon to view the present value annuity factor table.) 1. Should Chavez buy the new equipment? Show your computations, using the NPV method. Ignore income taxes. (Enter the present value factor to four decimal places, "X.XXXX." Round dollar amounts the nearest whole number. Use a minus sign or parentheses for a negative net present value.) Present value of Ordinary Annuity of $1 Annual Cash Total Present at 8 years, 10% Inflow Value Net present value: Present value of annuity of equal annual net cash inflows Less: Initial investment Net present value Chavez should the equipment because the NPV is per year =
Present Value of $1
Present Value of Ordinary Annuity of $1
Period 3%
4%
5%
1
.9709
.9615
2
.9426
6% 7% 8% 10%
.9524 .9434 .9346 .9259 .9091
.9246 .9070 .8900
12% 14% 16%
18% 20% 25%
Period 3%
4%
5%
6%
7%
8%
10%
12%
14%
3
.9151
.8890 .8638 .8396
4
8885 .8548 .8227 .7921
5
.8626
.8219 .7835 .7473 .7130 .6806
.8929 .8772 .8621
8734 .8573 .8264 .7972 .7695 .7432
.8163 .7938 .7513 .7118 .6750 .6407
.7629 .7350 .6830
.6209
.8475 .8333 .8000
.7182 .6944 .6400
.6086 .5787 5120
1
2
3
6355 5921 5523
5158 4823 4096
4
.5674 .5194 4761
.4371 .4019 3277
5
6
7
8
.7894 .7307
9
.7664 .7026
10
.7441 .6756
.8375 .7903 .7462 .7050 .6663 .6302 .5645
.8131 .7599 .7107 .6651 .6227 .5835 .5132
.6768 .6274 5820 .5403 4665
.6446 .5919 5439 .5002 .4241
.6139
.5066 4556 4104
.3704 .3349 2621
6
12
15
.5584 .5083 4632 .3855
.7014 .6246 .5568 4970 4440 .3971 .3186
.6419 5553 .4810 4173 3624 .3152
4523 .3996 3538
4039 3506 3050
3606 3075 2630
.3220 .2697 2267
.3139 2791 2097
2660
7
.2326 .1678
8
2255 1938.1342
.1911 1615 1074
2567 2076 .1685 1372 .1122 .0687
9
10
12
18
20
.5874 4936 .4155 3503 2959 .2502
.5537 4564 .3769 3118 2584 2145
25
28
.3335 2551 .1956 .1504
30
.3083 .2314 .1741 .1314
.1037 .0728 .0514
4776 .3751 .2953 2330 .1842 .1460 .0923 .0588 .0378 0245
4371
.1159 0693 0419 .0255 .0157
4120
.0994 .0573 .0334 .0196 0116
1486
2394 1827 .1401.1079 .0835 .0649 .0352
1799 1300 .0946 .0691 .0508 .0376 .0180
.0365 0261 .0115
15
18
20
.0160 .0105 .0038
25
.0097 .0061 .0019
28
.0070 .0042 .0012
30
.9709 .9615 .9524 .9434 .9346 .9259
1.9135 1.8861 1.8594 1.8334 1.8080 1.7833
2.8286 2.7751 2.7232 2.6730 2.6243 2.5771
2.4869 2.4018 2.3216 2.2459 2.1743 2.1065 1.9520
3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.1699 3.0373 2.9137 2.7982 2.6901 2.5887 2.3616
4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.7908 3.6048 3.4331 3.2743 3.1272 2.9906 2.6893
5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.3553 4.1114 3.8887 3.6847 3.4976 3.3255 2.9514
6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 4.8684 4.5638 4.2883 4.0386 3.8115 3.6046 3.1611
7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.3349 4.9676 4.6389 4.3436 4.0776 3.8372 3.3289
7.7861 7.4353 7.1078 6.8017 6.5152 6.2469 5.7590 5.3282 4.9464 4.6065 4.3030 4.0310 3.4631
8.5302 8.1109 7.7217 7.3601 7.0236 6.7101 6.1446 5.6502 5.2161 4.8332 4.4941 4.1925 3.5705
9.9540 9.3851 8.8633 8.3838 7.9427 7.5361 6.8137 6.1944 5.6603 5.1971 4.7932 4.4392 3.7251
11.9379 11.1184 10.3797 9.7122 9.1079 8.5595 7.6061 6.8109 6.1422 5.5755 5.0916 4.6755 3.8593
13.7535 12.6593 11.6896 10.8276 10.0591 9.3719 8.2014 7.2497 6.4674 5.8178 5.2732 4.8122 3.9279
14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 8.5136 7.4694 6.6231 5.9288 5.3527 4.8696 3.9539
17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 9.0770 7.8431 6.8729 6.0971 5.4669 4.9476 3.9849
18.7641 16.6631 14.8981 13.4062 12.1371 11.0511 9.3066 7.9844 6.9607 6.1520 5.5016 4.9697 3.9923
19.6004 17.2920 15.3725 13.7648 12.4090 11.2578 9.4269 8.0552 7.0027 6.1772 5.5168 4.9789 3.9950
16% 18% 20% 25%
.9091 .8929 .8772 8621 .8475 .8333 .8000
1.7355 1.6901 1.6467 1.6052 1.5656 1.5278 1.4400
Transcribed Image Text:Present Value of $1 Present Value of Ordinary Annuity of $1 Period 3% 4% 5% 1 .9709 .9615 2 .9426 6% 7% 8% 10% .9524 .9434 .9346 .9259 .9091 .9246 .9070 .8900 12% 14% 16% 18% 20% 25% Period 3% 4% 5% 6% 7% 8% 10% 12% 14% 3 .9151 .8890 .8638 .8396 4 8885 .8548 .8227 .7921 5 .8626 .8219 .7835 .7473 .7130 .6806 .8929 .8772 .8621 8734 .8573 .8264 .7972 .7695 .7432 .8163 .7938 .7513 .7118 .6750 .6407 .7629 .7350 .6830 .6209 .8475 .8333 .8000 .7182 .6944 .6400 .6086 .5787 5120 1 2 3 6355 5921 5523 5158 4823 4096 4 .5674 .5194 4761 .4371 .4019 3277 5 6 7 8 .7894 .7307 9 .7664 .7026 10 .7441 .6756 .8375 .7903 .7462 .7050 .6663 .6302 .5645 .8131 .7599 .7107 .6651 .6227 .5835 .5132 .6768 .6274 5820 .5403 4665 .6446 .5919 5439 .5002 .4241 .6139 .5066 4556 4104 .3704 .3349 2621 6 12 15 .5584 .5083 4632 .3855 .7014 .6246 .5568 4970 4440 .3971 .3186 .6419 5553 .4810 4173 3624 .3152 4523 .3996 3538 4039 3506 3050 3606 3075 2630 .3220 .2697 2267 .3139 2791 2097 2660 7 .2326 .1678 8 2255 1938.1342 .1911 1615 1074 2567 2076 .1685 1372 .1122 .0687 9 10 12 18 20 .5874 4936 .4155 3503 2959 .2502 .5537 4564 .3769 3118 2584 2145 25 28 .3335 2551 .1956 .1504 30 .3083 .2314 .1741 .1314 .1037 .0728 .0514 4776 .3751 .2953 2330 .1842 .1460 .0923 .0588 .0378 0245 4371 .1159 0693 0419 .0255 .0157 4120 .0994 .0573 .0334 .0196 0116 1486 2394 1827 .1401.1079 .0835 .0649 .0352 1799 1300 .0946 .0691 .0508 .0376 .0180 .0365 0261 .0115 15 18 20 .0160 .0105 .0038 25 .0097 .0061 .0019 28 .0070 .0042 .0012 30 .9709 .9615 .9524 .9434 .9346 .9259 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.4869 2.4018 2.3216 2.2459 2.1743 2.1065 1.9520 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.1699 3.0373 2.9137 2.7982 2.6901 2.5887 2.3616 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.7908 3.6048 3.4331 3.2743 3.1272 2.9906 2.6893 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.3553 4.1114 3.8887 3.6847 3.4976 3.3255 2.9514 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 4.8684 4.5638 4.2883 4.0386 3.8115 3.6046 3.1611 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.3349 4.9676 4.6389 4.3436 4.0776 3.8372 3.3289 7.7861 7.4353 7.1078 6.8017 6.5152 6.2469 5.7590 5.3282 4.9464 4.6065 4.3030 4.0310 3.4631 8.5302 8.1109 7.7217 7.3601 7.0236 6.7101 6.1446 5.6502 5.2161 4.8332 4.4941 4.1925 3.5705 9.9540 9.3851 8.8633 8.3838 7.9427 7.5361 6.8137 6.1944 5.6603 5.1971 4.7932 4.4392 3.7251 11.9379 11.1184 10.3797 9.7122 9.1079 8.5595 7.6061 6.8109 6.1422 5.5755 5.0916 4.6755 3.8593 13.7535 12.6593 11.6896 10.8276 10.0591 9.3719 8.2014 7.2497 6.4674 5.8178 5.2732 4.8122 3.9279 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 8.5136 7.4694 6.6231 5.9288 5.3527 4.8696 3.9539 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 9.0770 7.8431 6.8729 6.0971 5.4669 4.9476 3.9849 18.7641 16.6631 14.8981 13.4062 12.1371 11.0511 9.3066 7.9844 6.9607 6.1520 5.5016 4.9697 3.9923 19.6004 17.2920 15.3725 13.7648 12.4090 11.2578 9.4269 8.0552 7.0027 6.1772 5.5168 4.9789 3.9950 16% 18% 20% 25% .9091 .8929 .8772 8621 .8475 .8333 .8000 1.7355 1.6901 1.6467 1.6052 1.5656 1.5278 1.4400
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