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The Theta company manufactures silicon boards that are used in preparing small, medium and large size electronic circuits. The company is considering to reduce its cost by automating some of its manufacturing tasks. This automation requires the installation of a new equipment. The relevant information for net present value (NPV) analysis of investment in new equipment is given below:
i. Cost of equipment: $72,000
ii. Expected annual cost savings to be provided by new equipment: $40,000
iii. Useful life of the equipment: 6 years
iv. Salvage value at the end of 6 years: $0
v. Discount rate: 12%
Should the new equipment be purchased?
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