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Question(s) / Instruction(s):

A company wishes to buy new equipment for $85,000. The equipment is expected to generate an additional $35,000 in cash inflows for four years. All cash flows occur at year-end. A bank will make an $85,000 loan to the company at a 10% interest rate so that the company can purchase the equipment. Use the table below to determine the present value of the future cash flows and the net present value of the investment.

     

Year

Present value of 1 at 10%

0

1.0000

1

.09091

2

.8264

3

.7513

4

.6830

          

               

 

 

               

 

a)            $145,942 and $60,942 respectively

b)            $110,942 and $25,942 respectively

c)            $145,942 and $129,432 respectively

d)            $111,942 and $26,942 respectively

e)            $140,000 and $55,000 respectively

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