Cooper construction is considering purchasing new, technologically advanced equipment. The equipment will cost $625000 with a salvage value of $50000 at the end of its useful life of 10yrs. The equipment is expected to generate additional annual cash inflows with the following probabilities for the next 10 years:

Probability Cash Flow
15 $60000
25 85000
45 110000
15 130000

a. What is the expected cash flow?
b. Cooper’s cost of capital is 10%. What is the expected net present value?
c. Should cooper buy the equipment?

Question

Cooper construction is considering purchasing new, technologically advanced equipment. The equipment will cost $625000 with a salvage value of $50000 at the end of its useful life of 10yrs. The equipment is expected to generate additional annual cash inflows with the following probabilities for the next 10 years:

Probability	Cash Flow
15	                $60000
25	                85000
45	               110000
15	         130000
	

a.	What is the expected cash flow?	
b.	Cooper’s cost of capital is 10%. What is the expected net present value?
c.	Should cooper buy the equipment?