Five years ago, Burton Company purchased equipment with an expected useful life of 5 years. The initial cost of the equipment was $160,000. Burton's cost of capital is 12%; when it purchased the equipment, Burton computed a net present value of $15,824 for the investment. During the current year, the equipment reached the end of its useful life. Burton determined that, over the 5-year life, the equipment had generated annual cash inflows of $46,000. Required:Conduct a post-audit to determine whether the equipment achieved the net present value the company had expected. Based on the results actually achieved, was the asset in fact an acceptable investment? (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
What will be an ideal response?
| Net present value | = (Present value of annuity factor × $46,000) ? $160,000 |
| = (3.604776 × $46,000) ? $160,000 = $5,820 |
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What will be an ideal response?