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Enable Company is considering the purchase of production equipment that costs $1100000. The equipment is expected...

Enable Company is considering the purchase of production equipment that costs $1100000.
The equipment is expected to generate an annual cash flow of $400000 and have a useful life of 5 years with no salvage value.
The firm's cost of capital is 13 percent. The straight-line method with no mid-year convention is used.

40 Ignoring income taxes, the net present value of the project is

  1. A ($255,700)

  2. B $308,000

  3. C $255,700

  4. D $900,000

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Answer #1
Year Cash flow Discount rate @13%
0 $ (11,00,000.00) 1.000 $ (11,00,000.00)
(1-5) $      4,00,000.00 3.52 $    14,08,000.00
Net Present value $      3,08,000.00
Option (B) is correct $308000
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