Project - Evaluate The Capital Investment (1).docx -...

Running Head: PROJECT: EVALUATE THE CAPITAL INVESTMENT
Project: Evaluate the Capital Investment
Eugene Davis
Financial Accounting for Managers
Dr. Walfyette Powell
August 24, 2021

PROJECT: EVALUATE THE CAPITAL INVESTMENT
2
Evaluate, discuss, and compare whether to purchase the new equipment or overhaul the
old 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 = $262,028
NPV of New Backhoes:
Initial Investment: $200,000 – 42,000 = $158,000
Present 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 = $578,260
 Discuss the net present value of each, including what the calculations reveal about
whether the company should purchase the new backhoes or continue using the old
backhoes.