Question
Hangry Vending Machine Company is looking to expand its business by adding a new line of vending machines. The management team is considering expanding into
Hangry Vending Machine Company is looking to expand its business by adding a new line of vending machines. The management team is considering expanding into either soda machines or snack machines. Following is the relevant financial data relating to the decision:
| Soda Machines | Snack Machines | |
| Investment | $76,000 | $45,000 |
| Useful life (years) | 6 | 8 |
| Estimated annual net cash inflows for useful life | $40,000 | $21,000 |
| Residual value | $30,000 | $20,000 |
| Depreciation method | Straightline | Straightline |
| Required rate of return | 8% | 10% |
What is the total present value of future cash inflows from the soda machines and residual value?
Present Value of $1
| Periods | 6% | 8% | 10% | 12% | 14% |
| 4 | 0.792 | 0.735 | 0.683 | 0.636 | 0.592 |
| 5 | 0.747 | 0.681 | 0.621 | 0.567 | 0.519 |
| 6 | 0.705 | 0.630 | 0.564 | 0.507 | 0.456 |
| 8 | 0.627 | 0.540 | 0.467 | 0.404 | 0.351 |
| 10 | 0.558 | 0.463 | 0.386 | 0.322 | 0.270 |
| 12 | 0.497 | 0.397 | 0.319 | 0.257 | 0.208 |
Present Value of Annuity of $1
| Periods | 6% | 8% | 10% | 12% | 14% |
| 4 | 3.465 | 3.312 | 3.170 | 3.037 | 2.914 |
| 5 | 4.212 | 3.993 | 3.791 | 3.605 | 3.433 |
| 6 | 4.917 | 4.623 | 4.355 | 4.111 | 3.889 |
| 8 | 6.210 | 5.747 | 5.335 | 4.968 | 4.639 |
| 10 | 7.360 | 6.710 | 6.145 | 5.650 | 5.216 |
| 12 | 8.384 | 7.536 | 6.814 | 6.194 | 5.660 |
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Fundamentals Of Management
Authors: Ricky Griffin
10th Edition
9780357517345
