Price Mart is considering outsourcing its billing operations. A consultant estim

Question

Price Mart is considering outsourcing its billing operations. A consultant estimates that outsourcing should result in after-tax cash savings of $9,400 the first year, $15,400 for the next two years, and $18,400 for the next two years. Interest is at 11%. Assume cash flows occur at the end of the year. (FV of $1, PV of $1,FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

  

Calculate the total present value of the cash flows.

Price Mart is considering outsourcing its billing operations. A consultant estimates that outsourcing should result in after-tax cash savings of $9,400 the first year, $15,400 for the next two years, and $18,400 for the next two years. Interest is at 11%. Assume cash flows occur at the end of the year. (FV of $1, PV of $1,FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Explanation / Answer

Computation of present value of cash flows at a discount rate of 11%:

Year After tax cash savings PV factor at 11% PV of cash flows 1 $ 9,400 0.901 $ 8,469.40 2 $ 15,400 0.812 $ 12,504.80 3 $ 15,400 0.731 $ 11,257.40 4 $ 18,400 0.659 $ 12,125.60 5 $ 18,400 0.593 $ 10,911.20 Total Present Value $ 55,268.40

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