Akers Company is considering purchasing a machine. The machine will produce the following cash flows: Year $1 \quad \$ 30,000$
Year $2 \quad \$ 45,000$ Akers requires a minimum rate of return of 10%. What is the maximum price Akers should pay for this machine?
A) $64,462.95
B) $27,272.70
C) $75,000.00
D) $37,500.00

Question

Quizplus · Accepted Answer

The maximum price Akers should pay is the present value of the cash flows discounted at the required rate of return (10%). The present value of $30,000 in year 1 is $27,272.73 and $45,000 in year 2 is $37,190.22. Adding these gives $64,462.95.

Akers Company Is Considering Purchasing a Machine 1$30,0001 \quad \$ 30,0001$30,000

Akers Company Is Considering Purchasing a Machine $1 \quad \$ 30,000$