(LO 10) Poe Company is considering the purchase of new equipment costing $82,500. The projected net cash flows are $37,500 for the first two years and $32,500 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 $1 and present value of an annuity of $1 for different periods is presented below. Compute the net present value of the machine.

 

Periods Present Value

of $1 at 10% Present Value of an

Annuity of $1 at 10% 1   0.9091     0.9091   2   0.8264     1.7355   3   0.7513     2.4869   4   0.6830     3.1699  

Multiple Choice

• $(21,156).
• $(9,423).
• $21,156.
• $9,423.
• $29,199.