The initial cash outlay and cash flow projections are presented below for new equipment that Outdoor Sports, Inc. is evaluating. Outdoor Sports is considering manufacturing a new line of laser rangefinders:
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Initial Cash Outlay
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$1,500,000
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Annual Net cash inflowsYears 1 -5
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$450,000
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Outdoor Sports uses a cost of capital of 12 percent for discounting purposes.
Required:
- What is the net present value of the initial outlay?
- Using the net present value method, evaluate the decision to purchase the new equipment.
- Using the Internal Rate of Return method, evaluate the decision to purchase the new equipment.