Home Express Moving Company is considering purchasing new equipment that costs $728,000.Its management estimates that the equipment will generate cash inflows as follows: $$\begin{array} { | r | c | }
\hline \text { Year 1 } & \$ 214,000 \
\hline 2 & 214,000 \
\hline 3 & 264,000 \
\hline 4 & 264,000 \
\hline 5 & 150,000 \
\hline
\end{array}$$ Present value of $1:
$$\begin{array} { | c | r | r | r | r | r | }
\hline & 6 \% & 7 \% & 8 \% & 9 \% & 10 \% \
\hline 1 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \
\hline 2 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \
\hline 3 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \
\hline 4 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 \
\hline 5 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \
\hline
\end{array}$$ The company's annual required rate of return is 9%.Using the factors in the table,calculate the present value of the cash flows.(Round all calculations to the nearest whole dollar.)

Question

Home Express Moving Company is considering purchasing new equipment that costs $728,000.Its management estimates that the equipment will generate cash inflows as follows: $$\begin{array} { | r | c | } 
\hline \text { Year 1 } & \$ 214,000 \
\hline 2 & 214,000 \
\hline 3 & 264,000 \
\hline 4 & 264,000 \
\hline 5 & 150,000 \
\hline
\end{array}$$ Present value of $1:
$$\begin{array} { | c | r | r | r | r | r | } 
\hline & 6 \% & 7 \% & 8 \% & 9 \% & 10 \% \
\hline 1 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \
\hline 2 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \
\hline 3 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \
\hline 4 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 \
\hline 5 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \
\hline
\end{array}$$ The company's annual required rate of return is 9%.Using the factors in the table,calculate the present value of the cash flows.(Round all calculations to the nearest whole dollar.)

Quizplus · Accepted Answer

The present value of the cash flows is $864,646. This is calculated by multiplying each year's cash flow by the present value factor for that year and then summing the results. For example, the present value of the cash flow in year 1 is $214,000 x 0.917 = $195,618. The present value of the cash flow in year 2 is $214,000 x 0.842 = $180,068. The present value of the cash flow in year 3 is $264,000 x 0.772 = $203,712. The present value of the cash flow in year 4 is $264,000 x 0.708 = $186,312. The present value of the cash flow in year 5 is $150,000 x 0.650 = $97,500. The sum of these present values is $864,646.

Home Express Moving Company Is Considering Purchasing New Equipment That