Door to Door Moving Company is considering purchasing new equipment that costs $730,000.Its management estimates that the equipment will generate cash flows as follows: $$\begin{array} { | r | c | }
\hline \text { Year 1 } & \$ 206,000 \
\hline 2 & 206,000 \
\hline 3 & 262,000 \
\hline 4 & 262,000 \
\hline 5 & 154,000 \
\hline
\end{array}$$ Present value of $1:
$$\begin{array} { | l | r | r | r | r | r | }
\hline & { 6 \% } & { 7 \% } & { 8 \% } & { 9 \% } & 10 \% \
\hline 1 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \
\hline 2 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \
\hline 3 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \
\hline 4 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 \
\hline 5 & 0.747 & 0.713 & 0.681 & 0.605 & 0.621 \
\hline
\end{array}$$ The company's annual required rate of return is 8%.Using the factors in the table,calculate the present value of the cash inflows.(Round all calculations to the nearest whole dollar.)

Question

Door to Door Moving Company is considering purchasing new equipment that costs $730,000.Its management estimates that the equipment will generate cash flows as follows: $$\begin{array} { | r | c | } 
\hline \text { Year 1 } & \$ 206,000 \
\hline 2 & 206,000 \
\hline 3 & 262,000 \
\hline 4 & 262,000 \
\hline 5 & 154,000 \
\hline
\end{array}$$ Present value of $1:
$$\begin{array} { | l | r | r | r | r | r | } 
\hline &  { 6 \% } & { 7 \% } & { 8 \% } &  { 9 \% } & 10 \% \
\hline 1 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \
\hline 2 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \
\hline 3 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \
\hline 4 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 \
\hline 5 & 0.747 & 0.713 & 0.681 & 0.605 & 0.621 \
\hline
\end{array}$$ The company's annual required rate of return is 8%.Using the factors in the table,calculate the present value of the cash inflows.(Round all calculations to the nearest whole dollar.)

Quizplus · Accepted Answer

The present value of cash inflows is calculated by multiplying each cash flow by the present value factor for 8% and summing them up:  Year 1: $206,000 * 0.926 = $190,956  Year 2: $206,000 * 0.857 = $176,642  Year 3: $262,000 * 0.794 = $208,028  Year 4: $262,000 * 0.735 = $192,570  Year 5: $154,000 * 0.681 = $104,574  Total present value = $190,956 + $176,642 + $208,028 + $192,570 + $104,574 = $872,770.

Door to Door Moving Company Is Considering Purchasing New Equipment