Anthony operates a part time auto repair service. He estimates that a new diagno

Question

Anthony operates a part time auto repair service. He estimates that a new diagnostic computer system will result in increased cash inflows of $1,500 in Year 1, $2100 in Year 2, and $3,200 in Year 3, If Anthony's required rate of return is 10%, then the most he would be willing to pay for the new diagnostic computer system would be (Ignore income taxes.): Click here to view Exhibit 138-1 and Exhibit 138-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice $4,599 $5,501 $5,638 $5,107

Explanation / Answer

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=1500/1.1+2100/1.1^2+3200/1.1^3

=(1500*0.909)+(2100*0.826)+(3200*0.751)

which is equal to

=5501(Approx).

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.