Westmont Publishing is considering the purchase of a used printing press costing
ID: 2574036 • Letter: W
Question
Westmont Publishing is considering the purchase of a used printing press costing $75,200. The printing press would generate a net cash inflow of $31,310 a year for 3 years. At the end of 3 years, the press would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation. The present value factors of an annuity of $1.00 for different rates of return are as follows:
Cost of Capital
Period
8%
10%
12%
14%
16%
2
1.78326
1.73554
1.69005
1.64666
1.60523
3
2.57710
2.48685
2.40183
2.32163
2.24589
4
3.31213
3.16987
3.03735
2.91371
2.79818
The investments internal rate of return (rounded to the nearest percent) is
A.
14 percent.
B.
12 percent.
C.
10 percent.
D.
16 percent.
Westmont Publishing is considering the purchase of a used printing press costing $69,700. The printing press would generate a net cash inflow of $31,000 a year for 3 years. At the end of 3 years, the press would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation. The present value factors of an annuity of $1.00 for different rates of return are as follows:
Cost of Capital
Period
8%
10%
12%
14%
16%
2
1.78326
1.73554
1.69005
1.64666
1.60523
3
2.57710
2.48685
2.40183
2.32163
2.24589
4
3.31213
3.16987
3.03735
2.91371
2.79818
The investment's net present value is:
A.
$ 8,891
B.
$23,300
C.
$ 5,480
D.
$ 7,392
Cost of Capital
Explanation / Answer
1 PV factor for internal rate of return = 75200/31310= 2.40179 The PV factor 2.40179 for 3 years is closest to 12 percent Internal rate of return = 12 percent 2 Net present value = (31000*2.48685)-69700= 7392
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.