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Problem:

Cooper Construction is considering purchasing new, technologically advanced equipment. The equipment will cost $625,000 with a salvage value of $50,000 at the end of its useful life of 10 years. The equipment is expected to generate additional annual cash inflows with the following probabilities for the next ten years:

Probability

Cash Flow

.15 $60,000

.25 85,000

.45 110,000

.15 130,000

Required:

Task: Cooper's cost of capital is 10%. What is the expected net present value? and Should Cooper buy the equipment?

Note: Provide support for your rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91173122

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