A company is considering the purchase of new equipment costing $91,000.The machine has a useful life of four years and no salvage value.The company requires a 12% return on its investments.The factors for the present value of an annuity of 1 for different periods follow:

$$\begin{array} { lr }
\underline{\text { Periods }} &\underline{12 \text { Percert }} \
1 &0.8929 \
2 &1.6901 \
3 &2.4018 \
4 & 3.0373
\end{array}$$
Assuming all revenue is to be received at the end of each year,what are the net cash flows for this investment if net present value equals ($11,790)?

Question

A company is considering the purchase of new equipment costing $91,000.The machine has a useful life of four years and no salvage value.The company requires a 12% return on its investments.The factors for the present value of an annuity of 1 for different periods follow:

$$\begin{array} { lr } 
\underline{\text { Periods }} &\underline{12 \text { Percert }} \
1 &0.8929 \
2 &1.6901 \
3 &2.4018 \
4 & 3.0373
\end{array}$$
Assuming all revenue is to be received at the end of each year,what are the net cash flows for this investment if net present value equals ($11,790)?

Quizplus · Accepted Answer

Present value of annual net cash flows:
PV of net cash flows - $90,000 = ($11,790)
PV of net cash flows = $78,210
Net cash flows x 3.0373 = $78,210
Net cash flows = $25,750

A Company Is Considering the Purchase of New Equipment Costing