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E12-29A (similar to) Question Help Anderson Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $915,000. Projected net cash inflows are as follows: (Click the icon to view the projected net cash inflows.) (Click the icon to view the present value table.) (Click the icon to view the present value annuity table.) (Click the icon to view the future value table.) (Click the icon to view the future value annuity table.) Read the requirements Requirement 1. Compute this project's NPV using Anderson Industries' 14% hurdle rate. Should Anderson 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 values Data Table Year 1..... $263,000 Year 2.... $251,000 $224,000 Year 3.... Year 4...... Year 5 ..... $214,000 $203,000 Year 6 ... $176,000 Print Done Reference Present Value of $1 Periods 1 2. 3 4 5 2% 0.980 0.961 0.942 0.924 0.906 3% 0.971 0.943 0.915 0.888 0.863 4% 0.962 0.925 0.889 0.855 0.822 8% 0.926 0.857 0.794 0.735 0.681 18% 0.847 0.718 0.609 0.516 0.437 6 7 8 9 10 1% 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.888 0.871 0.853 0.837 0.820 0.837 0.813 0.789 0.766 0.744 0.790 0.760 0.731 0.703 0.676 5% 0.952 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.585 0.557 0.530 0.505 0.481 0.377 0.295 0.231 0.142 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.417 0.630 0.583 0.540 0.500 0.463 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.104 0.059 0.033 0.011 14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.237 0.208 0.182 0.160 0.140 16% 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 0.263 0.227 0.195 0.168 0.145 0.125 0.108 0.370 0.314 0.266 0.225 0.191 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 0.026 0.010 0.004 0.001 11 12 13 14 15 0.804 0.788 0.773 0.758 0.743 0.722 0.701 0.681 0.661 0.642 0.650 0.625 0.601 0.577 0.555 0.429 0.397 0.368 0.340 0.315 0.162 0.137 0.116 0.099 0.084 0.673 0.610 20 25 30 40 0.820 0.780 0.742 0.672 0.552 0.554 0.478 0.412 0.307 0.456 0.375 0.308 0.208 0.312 0.233 0.174 0.097 0.215 0.146 0.099 0.046 0.149 0.092 0.057 0.022 0.073 0.038 0.020 0.005 0.051 0.024 0.012 0.003 0.037 0.016 0.007 0.001 0.453 Print Done Reference Future Value of $1 Periods 1 2 3 4 5 1% 1.010 1.020 1.030 1.041 1.051 2% 1.020 1.040 1.061 1.082 1.104 1.126 1.149 1.172 1.195 1.219 3% 1.030 1.061 1.093 1.126 1.159 5% 1.050 1.103 1.158 1.216 1.276 6% 1.060 1.124 1.191 1.262 1.338 8% 1.080 1.166 1.260 1.360 1.469 10% 1.100 1.210 1.331 1.464 1.611 1.772 1.949 2.144 2.358 2.594 12% 1.120 1.254 1.405 1.574 1.762 14% 1.140 1.300 1.482 1.689 1.925 16% 1.160 1.346 1.561 1.811 2.100 18% 1.180 1.392 1.643 1.939 2 288 6 7 8 9 10 1.062 1.072 1.083 1.094 1.105 4% 1.040 1.082 1.125 1.170 1.217 1.265 1.316 1.369 1.423 1.480 1.539 1.601 1.665 1.732 1.801 2.191 2.666 3.243 4.801 1.194 1.230 1.267 1.305 1.344 1.340 1.407 1.477 1.551 1.629 1.419 1.504 1.594 1.689 1.791 1.587 1.714 1.851 1.999 2.159 2.195 2.502 2.853 3.252 3.707 2.436 2.826 3.278 3.803 4.411 2.700 3.185 3.759 4.435 5.234 1.243 1.268 11 12 13 14 15 1.116 1.127 1.138 1.149 1.161 1.220 1.282 1.348 1.489 1.294 1.319 1.384 1.426 1.469 1.513 1.558 1.710 1.796 1.886 1.980 2.079 2.653 3.386 4.322 7.040 1.898 2.012 2.133 2.261 2.397 2.332 2.518 2.720 2.937 3.172 1.974 2.211 2.476 2.773 3.106 3.479 3.896 4.363 4.887 5.474 9.646 17.000 29.960 93.051 2.853 3.138 3.452 3.797 4.177 6.727 10.835 17.449 45.259 1.346 1.486 1.641 1.811 2.208 4.226 4.818 5.492 6.261 7.138 13.743 26.462 50.950 188.884 5.117 5.936 6.886 7.988 9.266 6.176 7.288 8.599 10.147 11.974 27.393 62.669 143.371 750.378 20 25 30 40 1.806 2.094 2.427 3.262 3.207 4.292 5.743 10.286 4.661 6.848 10.063 21.725 19.461 40.874 85.850 378.721 Print Done Done i Reference Periods 2 3 4 6 7 8 9 10 Present Value of Annuity of $1 1% 2% 3% 4% 5% 6% 8% 10% 12% 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.9090.893 1.970 1.942 1.9131.886 1.859 1.833 1.783 1.736 1.690 2.941 2.884 2.829 2.775 2.723 2.673 2.577 2.487 2.402 3.902 3.808 3.717 3.630 3.546 3.465 3.312 3.170 3.037 4.853 4.713 4.580 4.452 4.329 4.212 3.993 3.791 3.605 5.795 5.601 5.417 5.242 5.076 4.917 4.623 4.355 4.111 6.728 6.472 6.230 6.002 5.786 5.582 5.206 4.868 4.564 7.652 7.325 7.020 6.733 6.463 6.210 5.747 5.335 4.968 8.566 8.162 7.786 7.435 7.108 6.802 6.247 5.759 5.328 9.471 8.983 8.530 8.111 7.722 7.360 6.710 6.145 5.650 10.368 9.787 9.253 8.760 8.306 7.887 7.139 6.495 5.938 11.255 10.575 9.954 9.385 8.863 8.384 7.536 6.814 6.194 12.134 11.348 10.635 9.986 9.394 8.853 7.904 7.103 6.424 13.004 12.106 11.296 10.563 9.899 9.295 8.244 7.367 6.628 13.865 12.849 11.938 11.118 10.380 9.712 8.559 7.606 6.811 18.046 16.351 14.877 13.590 12.462 | 11.470 9.818 8.514 7.469 22.023 19.523 17.413 15.622 14.094 12.783 10.675 9.077 7.843 25.808 22.396 19.600 17.292 15.372 13.765 11.258 9.427 8.055 32.835 27.355 23.115 19.793 17.159 15.046 11.925 9.779 8.244 14% 0.877 1.647 2.322 2.914 3.433 3.889 4.288 4.639 4.946 5.216 5.453 5.660 5.842 6.002 6.142 6.623 6.873 7.003 7.105 16% 0.862 1.605 2.246 2.798 3.274 3.685 4.039 4.344 4.607 4.833 5.029 5.197 5.342 5.468 5.575 18% 20% 0.847 0.833 1.566 1.528 2.174 2.106 2.690 2.589 3.127 2.991 3.498 3.326 3.812 3.605 4.078 3.837 4.303 4.031 4.494 4.192 4.656 4.327 4.793 4.439 4.910 4.533 5.008 4.611 5.092 4.675 5.353 4.870 5.467 4.948 5.517 4.979 5.548 4.997 11 12 13 14 15 20 25 30 40 5.929 6.097 6.177 6.233 Print Done Reference Rel Rel vh 4% Bel he Periods 1 2 3 4 5 1% 1.000 2.010 3.030 4.060 5.101 2% 1.000 2.020 3.060 4.122 5.204 3% 1.000 2.030 3.091 4.184 5.309 1.000 2.040 3.122 4.246 5.416 12% 1.000 2.120 3.374 4.779 6.353 Nd 6 7 8 9 10 6.152 7.214 8.286 9.369 10.462 6.468 7.662 8.892 10.159 11.464 6.308 7.434 8.583 9.755 10.950 12.169 13.412 14.680 15.974 17.293 Future Value of Annuity of $1 5% 6% 8% 10% 1.000 1.000 1.000 1.000 2.050 2.060 2.080 2.100 3.153 3.184 3.246 3.310 4.310 4.375 4.506 4.641 5.526 5.637 5.867 6.105 6.802 6.975 7.336 7.716 8.142 8.394 8.923 9.487 9.549 9.897 10.637 11.436 11.027 11.491 12.488 13.579 12.578 13.181 14.487 15.937 14.207 14.972 16.645 18.531 15.917 16.870 18.977 21.384 17.713 18.882 21.495 24.523 19.599 21.015 24 215 27.975 21.579 23.276 27.152 31.772 33.066 36.786 45.762 57.275 47.727 54.865 73.106 98.347 66.439 79.058 113 283 164.494 120.800 154.762 259.057 442.593 8.115 10.089 12.300 14.776 17.549 14% 16% 18% 1.000 1.000 1.000 2.140 2.160 2.180 3.440 3.506 3.572 4.921 5.066 5.215 6.610 6.877 7.154 8.536 8.977 9.442 10.730 11.414 12.142 13.233 14.240 15.327 16.085 17.519 19.086 19.337 21.321 23.521 23.045 25.733 28.755 27.271 30.850 34.931 32.089 36.786 42.219 37.581 43.672 50.818 43.842 51.660 60.965 91.025 115.380 146.628 181.871 249.214 342.603 356.787 530.312 790.948 1,342.025 2,360.757 4,163.213 11 12 13 14 15 6.633 7.898 9.214 10.583 12.006 13.486 15.026 16.627 18.292 20.024 29.778 41.646 56.085 95.026 11.567 12.683 13.809 14.947 16.097 12.808 14.192 15.618 17.086 18.599 20.655 24.133 28.029 32.393 37.280 72052 133.334 241.333 767.091 20 25 30 40 22.019 28.243 34.785 48.886 24.297 32.030 40.568 60.402 26.870 36.459 47.575 75.401 Print Done using Anderson Industries' 14% hurdle rate. Should Anderson Industries in i Requirements X 1. Compute this project's NPV using Anderson Industries' 14% hurdle rate. Should the company invest in the equipment? Why or why not? 2. Anderson Industries could refurbish the equipment at the end of six years for $100,000. The refurbished equipment could be used one more year, providing $74,000 of net cash inflows in Year 7. In addition, the refurbished equipment would have a $51,000 residual value at the end of Year 7. Should Anderson 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.) Print Done

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