Exercise A-17 (Static) Present Value Analysis in Nonprofit Organizations
The Minock Group, 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: Use Exhibit A.8.
Investment (outflow at time 0)
Periodic operating cash flows:
Annual cash savings because outside laboratories are not used
Additional cash outflow for people and supplies to operate the equipment
Salvage value after seven years, which is the estimated life of this project
Discount rate
Required:
a. Calculate the net present value of this decision.
Note: Round PV factor to 3 decimal places. Negative amounts should be indicated by a minus sign.
b. Should The Minock Group buy the equipment?
a. Net present value
b. Should The Minock Group buy the equipment?
$ 5,000,000
950,000
150,000
280,000
6%
