Replacing old equipment at an immediate cost of ?$100,000 and an additional outlay of ?$20,000 four years from now will result in savings of ?$23,000 per year for 7 years

Economics Aug 19, 2020

Replacing old equipment at an immediate cost of ?$100,000 and an additional outlay of ?$20,000 four years from now will result in savings of ?$23,000 per year for 7 years. The required rate of return is 10?% compounded annually. Compute the net present value and determine if the investment should be accepted or rejected according to the net present value criterion.

Expert Solution

As NPV is -$1,684.64 which is negative So, the investment should be rejected.

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