The management of Arnold Corporation is considering the purchase of a new machin

Question

The management of Arnold Corporation is considering the purchase of a new machine costing $400,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability in this situation:


Year Income From Operations Net Cash Flow
1 $100,000 180,000
2 40,000 120,000
3 20,000 100,000
4 10,000 90,000
5 10,000 90,000

Explanation / Answer

Year Income From Operations Net Cash Flow present value 1 $100,000 180,000 163620 2 40,000 120,000 99120 3 20,000 100,000 75100 4 10,000 90,000 61470 5 10,000 90,000 55890 Total Cash inflow present value 455,200 Initial cash outflow 400,000 Net present value 55,200 Since, there is positive net present value, the proposal is recomended for acceptance.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.