Time Value of Money - In-class Assignment 3. Palatial Products Inc. is considering the purchase of a new industrial machine. The estimated cost of the machine is $150,000. The machine is expected to generate annual cash inflows for the next four years as follows: Year 1. LEAF Company is contemplating the purchase of 2 new over the road tractor trailers that will automate certain business functions of the firm. The following estimates are available: Initial Outlay for each $175,000 Annual cash flow $60,000 $50,000 $40,000 $40,000 Overall annual reduction in fixed costs $82,400 Cost of Capital 8% or 4% The machine is not expected to have a residual value at the end of its useful life. The company uses a discount rate of 12% Estimated useful life of tractor trailers 8 years Estimated residual value of tractor trailers Required: Compute the net present value of the machine. (Ignore income taxes) Determine the net present value of the tractor trailer purchase for both rates. 4) The BKB Company is considering purchasing a machine for their manufacturing assembly operations. The machine would cost $150,000 and have no salvage value. It would allow them to assemble their product with one less direct labor person. The salary of one assembler for the next three years would be $55,000, $57,500 and $60,000. If they use a discount rate of 6.00% what is the NPV and should they accept the project? Cash Flow Factor PV 2. LEAF Company is considering the purchase of new computer equipment that will increase efficiencies within its hospital floors. The following estimates are available: Initial Outlay $1,000,000 Annual reduction in fixed costs $175,000 Cost of capital 10% Year 0 (today) Year 1 Year 2 Year 3 NPV Estimated life of computer equipment 5 years Estimated residual value of equipment $25,000 Determine the net present value of the computer equipment purchase Accept: Yes No