Question
Figure 14-10. Present value of $1 Periods 4% 6% 8% 10% 12% 14% 1 0.962 0.943 0.926 0.909 0.893 0.877 2 0.925 0.890 0.857 0.826
Figure 14-10.
Present value of $1
Periods | 4% | 6% | 8% | 10% | 12% | 14% |
1 | 0.962 | 0.943 | 0.926 | 0.909 | 0.893 | 0.877 |
2 | 0.925 | 0.890 | 0.857 | 0.826 | 0.797 | 0.769 |
3 | 0.889 | 0.840 | 0.794 | 0.751 | 0.712 | 0.675 |
4 | 0.855 | 0.792 | 0.735 | 0.683 | 0.636 | 0.592 |
5 | 0.822 | 0.747 | 0.681 | 0.621 | 0.567 | 0.519 |
6 | 0.790 | 0.705 | 0.630 | 0.564 | 0.507 | 0.456 |
7 | 0.760 | 0.665 | 0.583 | 0.513 | 0.452 | 0.400 |
8 | 0.731 | 0.627 | 0.540 | 0.467 | 0.404 | 0.351 |
9 | 0.703 | 0.592 | 0.500 | 0.424 | 0.361 | 0.308 |
10 | 0.676 | 0.558 | 0.463 | 0.386 | 0.322 | 0.270 |
Present value of an Annuity of $1
Periods | 4% | 6% | 8% | 10% | 12% | 14% |
1 | 0.962 | 0.943 | 0.926 | 0.909 | 0.893 | 0.877 |
2 | 1.886 | 1.833 | 1.783 | 1.736 | 1.690 | 1.647 |
3 | 2.775 | 2.673 | 2.577 | 2.487 | 2.402 | 2.322 |
4 | 3.630 | 3.465 | 3.312 | 3.170 | 3.037 | 2.914 |
5 | 4.452 | 4.212 | 3.993 | 3.791 | 3.605 | 3.433 |
6 | 5.242 | 4.917 | 4.623 | 4.355 | 4.111 | 3.889 |
7 | 6.002 | 5.582 | 5.206 | 4.868 | 4.564 | 4.288 |
8 | 6.733 | 6.210 | 5.747 | 5.335 | 4.968 | 4.639 |
9 | 7.435 | 6.802 | 6.247 | 5.759 | 5.328 | 4.946 |
10 | 8.111 | 7.360 | 6.710 | 6.145 | 5.650 | 5.216 |
Problem 14-12
Refer to Figure 14-10. Ray Corporation is looking to invest in a new piece of equipment. Two manufacturers of this type of equipment are being considered. After-tax inflows for the two competing projects are:
Year | Fallon Equipment Inc. | Toller Equipment Inc. | ||
1 | 275,000 | 70,000 | ||
2 | 225,000 | 70,000 | ||
3 | 185,000 | 285,000 | ||
4 | 140,000 | 330,000 | ||
5 | 65,000 | 390,000 |
Both projects require an initial investment of $400,000. In both cases, assume that the equipment has a life of five years with no salvage value.
Required:
A. Assuming a discount rate of 8 percent, compute the net present value of each piece of equipment.
Net Present Value | |
Fallon Equipment | $ |
Toller Equipment Inc. | $ |
B. A third option is now available for a supplier outside of the country. The cost is also $400,000, but it will produce even cash flows over its five-year life. What must the annual cash flow be for this equipment to be selected over the other two? Assume an 8 percent discount rate. $
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