Exercise 16-4 Determining the present value of an annuity LO 16-1 The dean of th

Question

Exercise 16-4 Determining the present value of an annuity LO 16-1 The dean of the School of Fine Arts is trying to decide whether to purchase a copy machine to place in the lobby of the building. The machine would add to student convenience, but the dean feels compelled to earn an 8 percent return on the Investment of funds. Estimates of cash inflows from copy machines that have been placed in other university buildings indicate that the copy machine would probably produce incremental cash inflows of approximately $16,500 per year The machine is expected to have a three-year useful life with a zero salvage value. (Use appropriate factor(s) from the tables provided.) Required a. Use Present Value PV of $1 to determine the maximum amount of cash the dean should be willing to pay for a copy machine. (Round intermediate calculations and final answer to 2 decimal places.) b. Use Present Value PVA of $1 to determine the maximum amount of cash the dean should be willing to pay for a copy machine. (Round your final answer to 2 decimal places.) References eBook & Resources chamomile-40149.. pg images (3) jpg images (2)jpg OType here to search

Explanation / Answer

Rate of Interest 8.00% 8.000% Years 3 3 PV =(1*8%*(1+8%)^3)/((1+8%)^3-1) 0.388034 16500/.388034        42,522 PV of annuity =(1-(1+r)^(-n))/r =(1-(1+.08)^(-3))/.08 2.577097 16500*2.577097        42,522

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