The management of Wyoming Corporation is considering the purchase of a new machi
ID: 2490616 • Letter: T
Question
The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability in this situation: Year Income from Operations Net Cash Flow 1 $18,750 $93,750 2 18,750 93,750 3 18,750 93,750 4 18,750 93,750 5 18,750 93,750 The present value index for this investment is: A) .95 B) 1.00 C) 1.05 D) 1.25
Explanation / Answer
The present value of Annuity of $93,750 = 93,750 x 4.212 = 394875 Present value index = 394875 / 375000 = 1.05 Answer - The present value index for this investment is: d) 1.05
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