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Johnson Manufacturing is considering investing $80,000 in a new piece of machinery that will generate net annual cash flows of $30,000 each year for the next 7 years


Johnson Manufacturing is considering investing $80,000 in a new piece of machinery that will generate net annual cash flows of $30,000 each year for the next 7 years. The machine has a salvage value of $10,000 at the end of its 7 year useful life. Johnson's cost of capital and discount rate is 8%. Which of the following tables and criteria should we use to discount the net annual cash flow? 

PV of annuity table, n=7, i=8% 

PV of a single sum table, n=7, i=8% 

PV of a single sum table, n=1, i=8% 

PV of annuity table, n=1, i=8%

Solutions

Expert Solution

Table for net annual cash flow :

Time = 7 years

Rate = 8%

And annual cash flow used annuity table

So answer is a) PV of annuity table n = 7, i = 8%

ekkarill92 answered 2 years ago
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