The dean of the School of Fine Arts ts trying to decide whether to purchase a co

Question

The dean of the School of Fine Arts ts 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 dollar 20.000 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: Use Present Value PV of dollar 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.) Use Present Value PV of dollar 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 pla

Explanation / Answer

Solution :

Year

Discount factor @8%

cash inflow

Present value

1

0.925925926

20000

         18,518.52

2

0.85733882

20000

         17,146.78

3

0.793832241

20000

         15,876.64

Maximum amount willing to pay for a copy machine

         51,541.94

Year

Discount factor @8%

cash inflow

Present value

1

0.925925926

20000

         18,518.52

2

0.85733882

20000

         17,146.78

3

0.793832241

20000

         15,876.64

Maximum amount willing to pay for a copy machine

         51,541.94

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