(Ignore income taxes in this problem.) Charley has a typing service. He estimate

Question

(Ignore income taxes in this problem.) Charley has a typing service. He estimates that a new computer will result in increased cash inflow $1,400 in Year 1, $1,800 in Year 2 and $2,800 in Year 3.

If Charley's required rate of return is 11%, the most that Charley would be willing to pay for the new computer would be: (Round your intermediate and final answers to the nearest dollar amount.)

$4,123

$4,770

$2,862

$4,304

(Ignore income taxes in this problem.) Charley has a typing service. He estimates that a new computer will result in increased cash inflow $1,400 in Year 1, $1,800 in Year 2 and $2,800 in Year 3.

Explanation / Answer

Item Year Amount of cash flow 11% factor Present value of cash flow Inflow -1 Year 1 1400              0.901                                             1,261 Inflow -2 Year 2 1800              0.812                                             1,461 Inflow -3 Year 3 2800              0.731                                             2,047 NPV                                             4,770

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