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  • Question 7

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    Edwin Otieno
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    The document calculates the net present worth (NPW) of an investment in equipment that costs $625,000 to purchase and $125,000 to install. It factors in an annual cash inflow of $150,000 over 10 years discounted at 5% per year, as well as the full $875,000 cost discounted at 5% over 10 years. Performing the calculations, it determines the NPW is -$4,387.25, indicating the investment is not financially feasible.

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    The document calculates the net present worth (NPW) of an investment in equipment that costs $625,000 to purchase and $125,000 to install. It factors in an annual cash inflow of $150,000 over 10 years discounted at 5% per year, as well as the full $875,000 cost discounted at 5% over 10 years. Performing the calculations, it determines the NPW is -$4,387.25, indicating the investment is not financially feasible.

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    © All Rights Reserved
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    8 views1 page

    Question 7

    Uploaded by

    Edwin Otieno
    The document calculates the net present worth (NPW) of an investment in equipment that costs $625,000 to purchase and $125,000 to install. It factors in an annual cash inflow of $150,000 over 10 years discounted at 5% per year, as well as the full $875,000 cost discounted at 5% over 10 years. Performing the calculations, it determines the NPW is -$4,387.25, indicating the investment is not financially feasible.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    Question 7:

    NPW = -$625,000 + $150,000(P/A,5%,10) - $875,000(P/F,5%,10)

    Cost of the equipment = $500,000+$125,000

    $150,000(P/A,5%,10) = $150,000 * 7.7217 = $1,158,255

    $875,000(P/F,5%,10) = $875,000 * 0.61391 = $537,643.25

    Substituting these values in the equation, we get:

    NPW = -$625,000 + $1,158,255 - $537,643.25

    Simplifying, we get:

    NPW = $-4,387.25

    Therefore, the net present worth of this investment is -$4,387.25, indicating that the

    investment is not financially feasible.

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