Problem:
Cooper Construction is considering purchasing new, technologically advanced equipment. The equipment will cost $625,000 with a salvage value of $50,000 at the end of its useful life of 10 years. The equipment is expected to generate additional annual cash inflows with the following probabilities for the next ten years:
|
Probability
|
Cash Flow
|
| .15 |
$60,000 |
| .25 |
85,000 |
| .45 |
110,000 |
| .15 |
130,000 |
Required:
Task: Cooper's cost of capital is 10%. What is the expected net present value? and Should Cooper buy the equipment?
Note: Provide support for your rationale.