Poe Company is considering the purchase of new equipment costing $80,000. The pr
ID: 2456120 • Letter: P
Question
Poe Company is considering the purchase of new equipment costing $80,000. The projected annual cash inflows are $30,200, to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Poe requires a 10% return on its investments. The present value of an annuity of 1 and present value of an annuity for different periods is presented below. Compute the net present value of the machine.
($15,731).
($4,896).
$15,731.
$4,896.
$32,334
Periods Present Value
of 1 at 10% Present Value of an
Annuity of 1 at 10% 1 0.9091 0.9091 2 0.8264 1.7355 3 0.7513 2.4869 4 0.6830 3.1699
Explanation / Answer
Answer : $15731.
Computation of Net present value
Years Cash inflows Discount @ 10% Present value of annuity cash flows
1 to 4 30200 3.1699 95730.98
less: initial investment (80000)
NPV 15730.98.
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