A company wishes to buy new equipment for $170,000. The equipment is expected to

Question

A company wishes to buy new equipment for $170,000. The equipment is expected to generate an additional $77,500 in cash inflows for four years. Ail cash flows occur at year-end. A bank will make an $170,000 loan to the company at a 10% interest rate so that the company can purchase the equipment. Use the table below to Determine the present value of the future cash flows and the net present value of the investment. $323,160 and $153,160 respectively $245,660 and $151,319 respectively $310,000 and $92,500 respectively $245,660 and $75,660 respectively $323,160 and $264,934 respectively

Explanation / Answer

*Internet is excluded as it would already be part of discount rate.

Year Cash inflow PV $ 1      77,500.00 0.9091           70,455 2      77,500.00 0.8264           64,046 3      77,500.00 0.7513           58,226 4      77,500.00 0.683           52,933 Total         245,660 Equipment cost       (170,000) NPV           75,660

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