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Sun Company is considering purchasing new equipment costing $350,000. Sun\'s man

ID: 2331582 • Letter: S

Question

Sun Company is considering purchasing new equipment costing $350,000. Sun's management has estimated that the equipment will generate cash inflows as follows:

Year 1

$100,000

Year 2

$100,000

Year 3

$125,000

Year 4

$125,000

Year 5

$75,000


Using the factors in the table below, please calculate the net present value of the net cash inflows above,
using a discount rate of 10%. Please round all calculations to the nearest whole dollar.

Present Value of $1

8%

9%

10%

1

0.926

0.917

0.909

2

0.857

0.842

0.826

3

0.794

0.772

0.751

4

0.735

0.708

0.683

5

0.681

0.650

0.621

$399,325

$342,800

$401,667

$399,761

Year 1

$100,000

Year 2

$100,000

Year 3

$125,000

Year 4

$125,000

Year 5

$75,000

Explanation / Answer

Answer:

Year

Cash
Flow

Present
value factor at 10%

Present
value

A

B

C=A*B

Year 1

100000

0.909

90900

Year 2

100000

0.826

82600

Year 3

125000

0.751

93875

Year 4

125000

0.683

85375

Year 5

75000

0.621

46575

net present value of the net cash inflows

399325

Net present value of the net cash inflows =$399,325

Year

Cash
Flow

Present
value factor at 10%

Present
value

A

B

C=A*B

Year 1

100000

0.909

90900

Year 2

100000

0.826

82600

Year 3

125000

0.751

93875

Year 4

125000

0.683

85375

Year 5

75000

0.621

46575

net present value of the net cash inflows

399325

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