DON Corp. is contemplating the purchase of a machine that will produce net after
ID: 2457328 • Letter: D
Question
DON Corp. is contemplating the purchase of a machine that will produce net after-tax cash savings of $31,000 per year for five years. At the end of five years, the machine can be sold to realize after-tax cash flows of $6,100. Interest is 10%. Assume the cash flows occur at the end of each year. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Calculate the total present value of the cash savings. (Do not round intermediate calculations.)
TOTAL PRESENT VALUE:___________________
Required:Calculate the total present value of the cash savings. (Do not round intermediate calculations.)
TOTAL PRESENT VALUE:___________________
Explanation / Answer
Therefore, present value of cash savings is $111,415.
Year Cash in flows ($) (a) Present value factor at 10% (1/1.10) (b) Present value of cash outflows ($) (c = a*b) 1 31,000 0.9091 28182.1 2 31,000 0.8265 25621.5 3 31,000 0.7513 23290.3 4 31,000 0.6830 21173 5 31,000 0.6209 19247.9 Total preset value of cash inflows before sale value of after tax cash flows) 117514.8 Less: Sale value of cash flows 6,100 Present value of cash savings 111,415Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.