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Running Head: PROJECT: EVALUATE THE CAPITAL INVESTMENTProject: Evaluate the Capital InvestmentEugene DavisFinancial Accounting for ManagersDr. Walfyette PowellAugust 24, 2021
PROJECT: EVALUATE THE CAPITAL INVESTMENT2Evaluate, discuss, and compare whether to purchase the new equipment or overhaul theold equipment.Calculate the net present value of the old backhoes and the new backhoes.NPV of Old Backhoes:Present Value = Cash Flows * Discount Rate Factor$55,000*0.92593 = $50,926 (Investment in major overhaul)$15,000*0.46319 = $6,948 (Salvage value in 8 years)$30,425*6.71008 = $204,154 (Net cash flow generated each year)Net Present Value of Old Backhoes= $50,926 + 6,948 + 204,154 =$262,028NPV of New Backhoes:Initial Investment: $200,000 – 42,000 = $158,000Present Value = Cash Flows * Discount Rate Factor$200,000*1 = $200,000 (Purchase cost when new)$42,000*1 = $42,000 (Salvage value now)$90,000*0.46319 = $41,687 (Salvage value in 8 years)$43,900*6.71008 = $294,573 (Net cash flow generated each year)Net Present Value of New Backhoes= $200,000 + 42,000 + 41,687 + 294,573 =$578,260Discuss the net present value of each, including what the calculations reveal aboutwhether the company should purchase the new backhoes or continue using the oldbackhoes.

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Term
Winter
Professor
Dr. Walfyette Powell
Tags
Net Present Value, new backhoes, old backhoes

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