the johnson research organization a nonprofit organization that 257200

The Johnson Research Organization, a nonprofit organization that does not pay taxes, is considering buying laboratory equipment with an estimated life of seven years so it will not have to use outsiders’ laboratories for certain types of work. The following are all of the cash flows affected by the decision:

Investment (outflow at time 0) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$6,000,000

Periodic operating cash flows:

Annual cash savings because outside laboratories

are not used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400,000

Additional cash outflow for people and supplies to operate

the equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000

Salvage value after seven years, which is the estimated

life of this project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10%

Required

Calculate the net present value of this decision. (Refer to Exhibit A.2 in formatting your answer.) Should the organization buy the equipment?

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