Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A company is considering a $163,000 investment in machinery with the following net cash flows. The company requires a 10% return on its investments. (PV

A company is considering a $163,000 investment in machinery with the following net cash flows. The company requires a 10% return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1)

Note: Use appropriate factor(s) from the tables provided.

Year 1 Year 2 Year 3 Year 4 Year 5
Net Cash Flow $10,000 $28,000 $54,000 $41,000 $109,000

(a) Compute the net present value of this investment.

(b) Should the machinery be purchased?

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed Table B. Present Value of an Annuity of 1 p=[11/(1+i)n]/i assuming an annual interest rate of 9% For (n=10,i=9%), the PV factor is 6.4177.$2,000 per year for 10 years is the equivalent of $12,835 today ($2,0006.4177). Table B.1* Present Value of 1 p=1/(1+i)n in 6 years from today? Using the factors of n=12 and i=5% (12 semiannual periods and a semianmual rate of 5% ), the factor is 0.5568. You would need to invest $2,784 today ($5,0000.5568) Compute the net present value of this investment. Note: Round your present value factor to 4 decimals. Round your final answers to the nearest whole dollar. Table B.4\$Future Value of an Annuity of 1 f=[(1+i)n1]/i an annual interest rate of 8% ? For (n=6,i=8%), the FV factor is 7.3359.$4,000 per year for 6 years accumulates to $29,343.60($4,0007.3359). Table B. 2 Future Value of 1 f=(1+i)n Using the factors of n=20 and i=2%(20 Should the machinery be purchased

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals Of Futures And Options Markets

Authors: John C. Hull

5th Edition

0131445650, 9780131445659

More Books

Students also viewed these Finance questions

Question

What is Larmors formula? Explain with a suitable example.

Answered: 1 week ago

Question

Define indirect financial compensation (employee benefits).

Answered: 1 week ago

Question

Describe the selection decision.

Answered: 1 week ago