Duncan Company is considering the investment of $138,200 in a new machine. It is
ID: 2381878 • Letter: D
Question
Duncan Company is considering the investment of $138,200 in a new machine. It is estimated that the new machine will generate additional cash flow of $20,500 per year for each year of its 8-year life and will have a salvage value of $13,500 at the end of its life. Duncan's financial managers estimate that the firm's cost of capital is 8%.
Calculate the present value ratio of the investment. (Round pv factor to 4 decimal places, intermediate calculations to the nearest dollar amount and final answer to 2 decimal places.)
Duncan Company is considering the investment of $138,200 in a new machine. It is estimated that the new machine will generate additional cash flow of $20,500 per year for each year of its 8-year life and will have a salvage value of $13,500 at the end of its life. Duncan's financial managers estimate that the firm's cost of capital is 8%.
Duncan Company is considering the investment of $138,200 in a new machine. It is estimated that the new machine will generate additional cash flow of $20,500 per year for each year of its 8-year life and will have a salvage value of $13,500 at the end of its life. Duncan's financial managers estimate that the firm's cost of capital is 8%. Calculate the present value ratio of the investment. (Round pv factor to 4 decimal places, intermediate calculations to the nearest dollar amount and final answer to 2 decimal places.)Explanation / Answer
present value ratio of the investment = present value of inflows/present value of outflows
present value of inflows = 20,500/1.08 + 20,500/1.08^2 + 20,500/1.08^3 + 20,500/1.08^4 + 20,500/1.08^5 + 20,500/1.08^6 + 20,500/1.08^7 + 20,500/1.08^8 + 13,500/1.08^8=125099.7283
present value ratio of the investment =125099.7283/138,200 =0.91
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