Brief Exercise D-24 echi e 12,463. Aner estimating oosts and re en es, a ney pra

Question

Brief Exercise D-24 echi e 12,463. Aner estimating oosts and re en es, a ney pra ects a net cash i now fron the etreading machine or $2.575 annually oryears. Barney hopes to earn a eturn of 9% on such Barney Googal o ns a garage à d is contemplating purchasing a tire et eading investment:. TABLE 4 Present Vaue of an Annuity ot I 12.4 154 96154 95238 94340 93458 92593 91743 90909 9000 89286 6957 88009 185941 183339180802 1.78320 1.75911 1 735541.71252 109005 162571 2.77509 2.72325 2.6730 2.62432 2.57710 2.53130 2.48685 244371 240183 228323 3.38721 3.31213 3.23972 3.16986 3.10245 3.03735 283498 4.45182 32948 4.21236 4.10020 39927 3.88965 3.7900 360500 3b048 35216 5.24214 50756 4.9173 .76654 4.62288 4.48592 4.35526 4.23054 4.1114 3.78448 6,00205 5.78637 5.58218 5.38929 5.20637 5.03295 486842 471220 456376 4.16042 o,75274 46321 D. 20g79 5 97130 574b64 55482 53saus 514012 496764 445732 7.43533 7.10782 6.80169 6.51523 624689 5.99525 5.75902 5.53708 5.32825 4.37158 8,110 7.72173 7.3600 70235 6.71008 641766 614457 588923 565022 501877 8.76048 830641 7.88687 7.49867 713896 6805196.49506 6.20652 5.93770523371 9.3850786325 8.38384 7.94269 7.53608 7.16073 681369 6.492366.19437 542062 998565 939357 8,85268 8.35765 7.90378 74890 7.10336 6.74987 642355 558315 10% 11% 11.11839 1037966 9.7 1 225 9.10791 8.55948 8.06069 7.60608 7.19087 6.81086 5.84737 11.05230 10.83777 10.10500 9.44665 8.85137.31256 7.82371 7.37916 0.97399 5.95424 2.16567 11 27407 10.47726 9 76322 9.12164 8.54363 802155 7.54879 7.11963 604716 12.65930 1168959 10.82760 1005909 9.37189 8.75563 820141 7.70162 7.24967 6.12797 13.13594 1208532 11.15812 1033560 9.60360 8.95012 36492 7.83029 736578 6.19823 19 What is the present value of the retreading operetion? (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answer to 2 decimal places, e.g. 25.25.) Present valuc Should Barnay Googal purchase the retreading machine? Question Attempts: O of 1 used SAVE FOR LATER SUBMIT ANSWER

Explanation / Answer

Answer:

First of all we will calculate the present value of annual cash flow as under

Cash inflow
per year

Time
period

Present
value factor at the rate 9%

PRESENT VALUE

A

B

C=A*B

2575

7 year

5.03295

12959.85

the present value of annual cash flow =$12959.85

Now we will find NPV as under

the present value of annual cash flow

12959.85

Less:

Initial Investment

12,463

NPV of the project

496.85

NPV =$496.85

_________________________________________

2

YES

As NPV of the machine is positive so Barney should purchase machine

Cash inflow
per year

Time
period

Present
value factor at the rate 9%

PRESENT VALUE

A

B

C=A*B

2575

7 year

5.03295

12959.85

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