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QUESTION:


Berkner Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $950,000. Projected net cash inflows are as follows:

View the projected net cash inflows. View the present value of $1 table.

View the future value of $1 table. Read the requirements.

View the present value of annuity of $1 table.

View the future value of annuity of $1 table.

Requirement 1. Compute this project's NPV using Berkner Industries' 14% hurdle rate. Should Berkner Industries invest in the equipment? Why or why not?

Begin by computing the project's NPV (net present value). (Round your answer to the nearest whole dollar. Use parentheses or a minus sign for negative net present values.)

Net present value





















ANSWER:

Requirement 1. Compute this​ project's NPV using
Berkner
​Industries'
14​%
hurdle rate. Should
Berkner
Industries invest in the​ equipment? Why or why​ not?
Begin by computing the​ project's NPV​ (net present​ value). ​(Round your answer to the nearest whole dollar. Use parentheses or a minus sign for negative net present​ values.)
Net present value
$(63,251)
Part 2
Berkner
Industries
should not
invest in the equipment because its NPV is
negative
.
Part 3
Requirement 2.
Berkner
Industries could refurbish the equipment at the end of six years for
$ 102 comma 000.
The refurbished equipment could be used one more​ year, providing
$ 79 comma 000
of net cash inflows in Year 7. In​ addition, the refurbished equipment would have a
$ 50 comma 000
residual value at the end of Year 7. Should
Berkner
Industries invest in the equipment and refurbish it after six​ years? Why or why​ not?
​(Hint​:
In addition to your answer to Requirement​ 1, discount the additional cash outflow and inflows back to the present​ value.)
Calculate the additional NPV provided from the refurbishment. ​(Round your answer to the nearest whole dollar. Use parentheses or a minus sign for negative net present​ values.)
Additional NPV provided from refurbishment
$5,088
Part 4

The refurbishment provides a
positive
NPV. The refurbishment NPV is
not large enough
to overcome the original NPV of the equipment.​ Therefore, the refurbishment
should not
alter
Berkner
​Industries' original decision regarding the equipment investment.

Posted by Cleveland on September 5, 2024
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