Poe Company is considering the purchase of new equipment costing $84,000. The pr
ID: 2526523 • Letter: P
Question
Poe Company is considering the purchase of new equipment costing $84,000. The projected net cash flows are $39,000 for the first two years and $34,000 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.
$(24,411).
$(12,140).
$24,411.
$12,140.
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 3.1699Explanation / Answer
Net present value of the machine = ($39,000 * 1.7355) + ($34,000 * 1.4344) - $84,000
Net present value of the machine = $32,454
Options given are incorrect.
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