Sun Company is considering purchasing new equipment costing $350,000. Sun\'s man
ID: 2331582 • Letter: S
Question
Sun Company is considering purchasing new equipment costing $350,000. Sun's management has estimated that the equipment will generate cash inflows as follows:
Year 1
$100,000
Year 2
$100,000
Year 3
$125,000
Year 4
$125,000
Year 5
$75,000
Using the factors in the table below, please calculate the net present value of the net cash inflows above,
using a discount rate of 10%. Please round all calculations to the nearest whole dollar.
Present Value of $1
8%
9%
10%
1
0.926
0.917
0.909
2
0.857
0.842
0.826
3
0.794
0.772
0.751
4
0.735
0.708
0.683
5
0.681
0.650
0.621
$399,325
$342,800
$401,667
$399,761
Year 1
$100,000
Year 2
$100,000
Year 3
$125,000
Year 4
$125,000
Year 5
$75,000
Explanation / Answer
Answer:
Year
Cash
Flow
Present
value factor at 10%
Present
value
A
B
C=A*B
Year 1
100000
0.909
90900
Year 2
100000
0.826
82600
Year 3
125000
0.751
93875
Year 4
125000
0.683
85375
Year 5
75000
0.621
46575
net present value of the net cash inflows
399325
Net present value of the net cash inflows =$399,325
Year
Cash
Flow
Present
value factor at 10%
Present
value
A
B
C=A*B
Year 1
100000
0.909
90900
Year 2
100000
0.826
82600
Year 3
125000
0.751
93875
Year 4
125000
0.683
85375
Year 5
75000
0.621
46575
net present value of the net cash inflows
399325
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