Question

You have just been offered a contract worth $ 1.07 million per year for 7 years.​ However, to take the​ contract, you will need to purchase some new equipment. Your discount rate for this project is 12.3 %. You are still negotiating the purchase price of the equipment. What is the most you can pay for the equipment and still have a positive NPV​? The most you can pay for the equipment and achieve the 12.3 % annual return is ​_ million.

Answer 1

Max AMount can be paid = PV of Cash Inflows

Year	CF ( in M)	PVF @12.3%	Disc CF ( in M)
1	$      1.07	0.8905	$      0.95
2	$      1.07	0.7929	$      0.85
3	$      1.07	0.7061	$      0.76
4	$      1.07	0.6288	$      0.67
5	$      1.07	0.5599	$      0.60
6	$      1.07	0.4986	$      0.53
7	$      1.07	0.4440	$      0.48
PV of Cash Flows			$      4.84

Max AMount can be paid still NPV is +ve is $ 4.84 M