Figure 14-10.
Present value of $1
Present value of an Annuity of $1
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:
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.
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.

Question

Figure 14-10.
Present value of $1
  Present value of an Annuity of $1
  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:
  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.
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.

Quizplus · Accepted Answer

The Answer of Figure 14-10.
Present value of $1
  Present value of an Annuity of $1
  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:
  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.
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.

Figure 14-10. Present Value of $1