Question

Mindy Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an increase in net income tar tax of $50,000. The equipment will have an ini cost of $500,000 and have an 8 year . The equipment has no vage value. The hurdle rate is 10% V O L. Present F . r uity 1. Present Amity of Use appropriate factor from the PV tables

Answer 1

	Note: Please note that the image is not clear, I am not sure about the useful life of the asset 5 years. If the useful life of the asset is other than 5 years,
		please inform me in the comment box, I will change the answer accordingly.
	a)	NPV@ 10%
		Year	Particular	Cashflow	Discounting Factor @10%	Discounted Cash Flow
		a	b	c	d	e=d*c
		0	Initial Cost Of Equipment	$ -5,00,000	1.0000	$                 -5,00,000.00
		1	Annual Cash Inflows	$      50,000	0.9091	$                       45,454.55
		2	Annual Cash Inflows	$      50,000	0.8264	$                       41,322.31
		3	Annual Cash Inflows	$      50,000	0.7513	$                       37,565.74
		4	Annual Cash Inflows	$      50,000	0.6830	$                       34,150.67
		5	Annual Cash Inflows	$      50,000	0.6209	$                       31,046.07
			NPV			$                       -3,10,461
			Therefore NPV = $-310461
	b)	NPV@ 15%
		Year	Particular	Cashflow	Discounting Factor @15%	Discounted Cash Flow
		a	b	c	d	e=d*c
		0	Initial Cost Of Equipment	$ -5,00,000	1.0000	$                 -5,00,000.00
		1	Annual Cash Inflows	$      50,000	0.8696	$                       43,478.26
		2	Annual Cash Inflows	$      50,000	0.7561	$                       37,807.18
		3	Annual Cash Inflows	$      50,000	0.6575	$                       32,875.81
		4	Annual Cash Inflows	$      50,000	0.5718	$                       28,587.66
		5	Annual Cash Inflows	$      50,000	0.4972	$                       24,858.84
			NPV			$                       -3,32,392
			Therefore NPV = $-332392