Eon Industries is deciding whether to automate one phase

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Eon Industries is deciding whether to automate one phase of its production process. The
manufacturing equipment has a six-year life and will cost $920,000. Projected net cash inflows
are as follows:Year 1.................................................. $ 261,000Year
2.................................................. 254,000Year 3.................................................. 227,000Year
4.................................................. 211,000Year 5.................................................. 201,000Year
6.................................................. 175,000Requirements1. Compute this project’s NPV using
Eon’s 16% hurdle rate. Should Eon invest in the equipment?2. Eon could refurbish the
equipment at the end of six years for $104,000. The refurbished equipment could be used one
more year, providing $77,000 of net cash inflows in year 7. Additionally, the refurbished
equipment would have a $51,000 residual value at the end of year 7. Should Eon invest in the
equipment and refurbish it after six years? View Solution:
Eon Industries is deciding whether to automate one phase of

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