My company is considering buying new equipment with a cost of $625,000 and a salvage value of $50,000 at the end of its useful life of ten years

Business Sep 17, 2020

My company is considering buying new equipment with a cost of $625,000 and a salvage value of $50,000 at the end of its useful life of ten years. The equipment is expected to generate additional annual cash flow for ten years with the following possibilities:

Probability Cash Flow

.15 $60,000
.25 $85,000
.45 $110,000
.15 $130,000

a. What is the expected cash flow?
b. If the company's cost of capital is 10%, what is the expected net present value?
c. Should the company buy the equipment?
Explain?

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