A fast-food establishment is thinking of buying a new cooking grill and refrigeration unit. the costs of these new machines are $12,500 and $9,000, respectively. The installation costs of the new equipment will run about $800. It is estimated that 10% more customers can be served with the new equipment, which would mean an additional annual net cash flow of approximately $4,500. The salvage value of the old grill and refigeration unit estimated to be 1,000. The firm’s cost of capital is 12%. The equipment should last 10 years, at a minimum.
Using the net present value method, should the company purchase the new equipment? Ignore income tax effects.
Using the net present value method, should the company purchase the new equipment? Ignore income tax effects.