The Becker Company is interested in buying a piece of equipment. The following data have been assembled concerning this equipment:

This equipment is expected to have a useful life of six years. At the end of the sixth year, the working capital would be released for use elsewhere. The company's discount rate is 10%. (Ignore income taxes in this problem.)

-What is the present value of the net cash flows (all cash inflows minus all cash outflows)occurring during year 4?

Question

The Becker Company is interested in buying a piece of equipment. The following data have been assembled concerning this equipment:

This equipment is expected to have a useful life of six years. At the end of the sixth year, the working capital would be released for use elsewhere. The company's discount rate is 10%. (Ignore income taxes in this problem.)

-What is the present value of the net cash flows (all cash inflows minus all cash outflows)occurring during year 4?

Quizplus · Accepted Answer

The present value of the net cash flows for year 4 is calculated by discounting the net cash flows at the appropriate discount rate. The correct present value is $27,320.

The Becker Company Is Interested in Buying a Piece of Equipment