Julian Browne, owner of Clear Interior Environments, purchased an air scrubber,
ID: 1237583 • Letter: J
Question
Julian Browne, owner of Clear Interior Environments, purchased an air scrubber, HEPA vacuum, and other equipment for mold removal for $15,000 eight months ago. Net cashflows were $-2000 for each of the first two months, followed by $1000 per month for months 3 and 4. For the last 4 months, a contract generated a net $6000 per month. Julian sold the equipment yesterday for $3000 to a friend.
For the net cash flows experienced, what could Julian have paid for the equipment 8 months ago to have payback plus a return of exactly 18% per year over the ownership period?
Explanation / Answer
Present value of cash flows= -2000/1.18-2000/1.18^2+1000/1.18^3+1000/1.18^4+6000/1.18^5+ 6000/1.18^6 +6000/1.18^7 + 6000/1.18^8 =6318.16 Julian should have paid for the equipment 8 months ago = $6318.16
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