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34. Poe Company is considering the purchase of new equipment costing $81,000. The projected net cash flows are $36,000 for the first two years and
34.
Poe Company is considering the purchase of new equipment costing $81,000. The projected net cash flows are $36,000 for the first two years and $31,000 for years three and four. The revenue is to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Poe requires a 10% return on its investments. The present value of an annuity of 1 and present value of an annuity for different periods is presented below. Compute the net present value of the machine.
Periods | Present Valueof 1 at 10% | Present Value of anAnnuity of 1 at 10% |
1 | 0.9091 | 0.9091 |
2 | 0.8264 | 1.7355 |
3 | 0.7513 | 2.4869 |
4 | 0.6830 | 3.1699 |
$(17,901).
$(6,707).
$17,901.
$6,707.
$25,944.
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