Chapter 13 #1 Present Value - flow much would you have to put in the bank today to have $100 at the end of five years if the interest rate is 10%? #2 Present Value of an Annuity - If the interest rate is 14%, how much would you have to put in the bank today so as to be able to withdraw $100 at the end of each of the next five years? #3 1. Renner Inc. has been offered a four-year contract to supply parts for a local business. The cash flow information for the project is detailed below: Cost of equipment $250,000 Working capital required $20,000 Upgrading equipment in 2 years $90,000 Salvage value of equipment in 4 years $10,000 Annual net cash inflow $120,000 The working capital would be released at the end of the contract in 4 years. The cost of capital is 14%. Compute the NPV of the project: Cash Flow Description Cash Flow PV Factor PV of Cash Flow Cost of equipment Working capital required Upgrading equipment in 2 years Salvage value of equipment in 4 years Annual net cash inflow Release of working capital Total NPV 4 = Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $188,400, including freight and installation. Henrie's has estimated that the new machine would increase the company's cash inflows, net of expenses, by $25,000 per year. The machine would have a 12-year useful life and no salvage value. Compute the IRR of the project. #5 Johnson Co. is considering a project with an original cost of $105,000. The cash inflows the project would produce are as follows: Year 1: $30,000, Year 2: $25,000, Year 3: $20,000, Year 4: $25,000, Year 5: $25,000. Compute the payback period of the project