The Pantry Vending Machine Company is looking to expand its business by adding a new line of vending machines. The management team is considering expanding into either soda machines or snack machines. Following is the relevant financial data relating to the decision: What is the present value of all future cash inflows from the snack machines and residual value?
Present Value of $1
Present Value of Annuity of $1

Question

The Pantry Vending Machine Company is looking to expand its business by adding a new line of vending machines. The management team is considering expanding into either soda machines or snack machines. Following is the relevant financial data relating to the decision:  What is the present value of all future cash inflows from the snack machines and residual value?
Present Value of $1
 Present Value of Annuity of $1

Quizplus · Accepted Answer

We need to calculate the present value of future cash inflows from both options to determine the better choice. 
For the soda machines: 
Present value of future cash inflows = (Annual cash inflow x Present value of annuity factor for 6 years) + Residual value x Present value factor for 6 years 
= (21,500 x 4.212) + (12,000 x 0.564) 
= 90,612 + 6,768 
= 97,380

For the snack machines: 
Present value of future cash inflows = (Annual cash inflow x Present value of annuity factor for 3 years) + Residual value x Present value factor for 3 years 
= (14,200 x 2.577) + (25,000 x 0.840) 
= 36,578 + 21,000 
= 57,578

Therefore, the present value of future cash inflows from the soda machines is $97,380 and from the snack machines is $57,578. Therefore, the best choice is soda machines as it has a higher present value of future cash inflows.

The Pantry Vending Machine Company Is Looking to Expand Its