Lloyd's Moving Company is considering purchasing new equipment that costs $728,000.Its management estimates that the equipment will generate cash flows as follows: $$\begin{array} { | r | c | }
\hline \text { Year 1 } & \$ 206,000 \
\hline 2 & 206,000 \
\hline 3 & 254,000 \
\hline 4 & 254,000 \
\hline 5 & 156,000 \
\hline
\end{array}$$ Present value of $1:
$$\begin{array} { | l | r | r | r | r | r | }
\hline & { 6 \% } &{ 7 \% } & { 8 \% } & { 9 \% } & 10 \% \
\hline 1 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \
\hline 2 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \
\hline 3 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \
\hline 4 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 \
\hline 5 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \
\hline
\end{array}$$ The company's annual required rate of return is 9%.Using the factors in the table,calculate the present value of the cash flows.(Round all calculations to the nearest whole dollar.)

Question

Lloyd's Moving Company is considering purchasing new equipment that costs $728,000.Its management estimates that the equipment will generate cash flows as follows: $$\begin{array} { | r | c | } 
\hline \text { Year 1 } & \$ 206,000 \
\hline 2 & 206,000 \
\hline 3 & 254,000 \
\hline 4 & 254,000 \
\hline 5 & 156,000 \
\hline
\end{array}$$ Present value of $1:
$$\begin{array} { | l | r | r | r | r | r | } 
\hline & { 6 \% } &{ 7 \% } & { 8 \% } & { 9 \% } & 10 \% \
\hline 1 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \
\hline 2 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \
\hline 3 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \
\hline 4 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 \
\hline 5 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \
\hline
\end{array}$$ The company's annual required rate of return is 9%.Using the factors in the table,calculate the present value of the cash flows.(Round all calculations to the nearest whole dollar.)

Quizplus · Accepted Answer

To calculate the present value of the cash flows at a 9% discount rate, we use the present value factors from the table for each year and multiply them by the respective cash flows, then sum these present values:- Year 1: $206,000 * 0.917 = $188,902- Year 2: $206,000 * 0.842 = $173,452- Year 3: $254,000 * 0.772 = $196,168- Year 4: $254,000 * 0.708 = $179,832- Year 5: $156,000 * 0.650 = $101,400Adding these amounts gives us the total present value of the cash flows: $188,902 + $173,452 + $196,168 + $179,832 + $101,400 = $839,754. Rounding to the nearest whole dollar gives $839,674.

Lloyd's Moving Company Is Considering Purchasing New Equipment That Costs