34. Poe Company is considering the purchase of new equipment costing $81,000. Th

Question

34.

Poe Company is considering the purchase of new equipment costing $81,000. The projected net cash flows are $36,000 for the first two years and $31,000 for years three and four. The revenue is 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.

$(17,901).

$(6,707).

$17,901.

$6,707.

$25,944.

Periods Present Valueof 1 at 10% Present Value of anAnnuity 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

So, as we can find, the Net Present Value is $25,944 and the last option is the correct option.

Years 0 1 2 3 4 A Initial Cost -81000 B Cash Flows 36000 36000 31000 31000 C = A + B Net Cash Flows -81000 36000 36000 31000 31000 D PV factor @10% 1 0.9091 0.8264 0.7513 0.683 E = C x D Present Value -81000 32727.6 29750.4 23290.3 21173 F = Sum E Net Present Value 25941.3

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

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