Question

In: Accounting

Snyder Company is considering purchasing equipment. The equipment will produce the following cash inflows: Year 1,...

Snyder Company is considering purchasing equipment. The equipment will produce the following cash inflows: Year 1, $33,500; Year 2, $37,500; and Year 3, $46,000. Snyder requires a minimum rate of return of 12%.

(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

What is the maximum price Snyder should pay for this equipment? (Round answer to 2 decimal places, e.g. 25.25.)

Solutions

Expert Solution

Required rate of return 12%
Synder company should pay maximum present value of cash flows i.e. net present value
Year 1 Year 2 Year 3
Cash Inflows 33,500.00         37,500.00          46,000.00
(x) Present value factor @12% 0.89286            0.79719 0.71178
[1/(1.12^1) [1/(1.12^2)    [1/(1.12^3)
Presnt value of cash flow          29,910.71         29,894.77          32,741.89
(Cash Inflow * Present value factor)
Net Present value          92,547.38
(Sum of present value of cash flow) (29,910.71 + 29,894.77 + 32,741.89)
Synder company should pay maximum $ 92,547.38 to acquire equipment

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Erica is considering a project that will produce cash inflows of $2,999 a year for 3...
Erica is considering a project that will produce cash inflows of $2,999 a year for 3 years. The required rate of return is 15 percent and the initial cost is $6,800. What is the discounted payback period?
The Zinger Company is considering an $11,000 investment that has the following net cash inflows: Year...
The Zinger Company is considering an $11,000 investment that has the following net cash inflows: Year 1………..$2,000 Year 2………..$2,000 Year 3………..$5,000 Year 4………..$4,000 Year 5………..$4,000 The payback period for this investment is: a. 3.0 years. b. 3.5 years. c. 4.0 years. d. 4.5 years.
29. The Steel Factory is considering a project that will produce cash inflows of $44,400 a...
29. The Steel Factory is considering a project that will produce cash inflows of $44,400 a year for five years. What is the internal rate of return if the initial cost of the project is $135,000? 15.45 percent 19.25 percent 11.95 percent 17.65 percent 13.15 percent 15.Chance, Inc. is considering a project with an initial cost of $1.02 million. The project will not produce any cash flows for the first two years. Starting in year 3, the project will produce...
Operating cash inflows   Strong Tool Company has been considering purchasing a new lathe to replace a...
Operating cash inflows   Strong Tool Company has been considering purchasing a new lathe to replace a fully depreciated lathe that would otherwise last 5 more years. The new lathe is expected to have a​ 5-year life and depreciation charges of $2,020 in Year​ 1; $3,232 in Year​ 2; $1,919 in Year​ 3; $1,212 in both Year 4 and Year​ 5; and $505 in Year 6. The firm estimates the revenues and expenses​ (excluding depreciation and​ interest) for the new and...
Operating cash inflows   Strong Tool Company has been considering purchasing a new lathe to replace a...
Operating cash inflows   Strong Tool Company has been considering purchasing a new lathe to replace a fully depreciated lathe that would otherwise last 5 more years. The new lathe is expected to have a​ 5-year life and depreciation charges of $2,020 in Year​ 1; $3,232 in Year​ 2; $1,919 in Year​ 3; $1,212 in both Year 4 and Year​ 5; and $505 in Year 6. The firm estimates the revenues and expenses​ (excluding depreciation and​ interest) for the new and...
Davis Chili Company is considering an investment of $60,000, which produces the following inflows: Year Cash...
Davis Chili Company is considering an investment of $60,000, which produces the following inflows: Year Cash Flow 1 $ 27,000 2 26,000 3 23,000 Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Determine the net present value of the project based on a zero percent discount rate. Net present value $ b. Determine the net present value of the project based on a 10 percent discount rate. (Do...
Peri Corporation is considering an investment opportunity with the following expected net cash inflows: Year 1,...
Peri Corporation is considering an investment opportunity with the following expected net cash inflows: Year 1, $260,000; Year 2, $340,000; Year 3, $390,000. The company uses a discount rate of 11%, and the initial cost of the investment is $770,000. The IRR of the project will be ________. a between 11% and 12% b between 12% and 13% c more than 13% d less than 11%
A company is expected to generate the following cash inflows: Year 1: $10,000 Year 5: $25,000...
A company is expected to generate the following cash inflows: Year 1: $10,000 Year 5: $25,000 Year 7: $20,000 What is the value of these cash flows in year 10 if the interest rate is 13%?
2. A project will produce cash inflows of $3,200 a year for 4 years with a...
2. A project will produce cash inflows of $3,200 a year for 4 years with a final cash inflow of $5,700 in year 5. The project's initial cost is $9,500. What is the net present value of this project if the required rate of return is 16 percent? Please show all work preferably with the formulas, not just the grid. Thank you
A company is considering purchasing new equipment. The purchase of the equipment is       expected to...
A company is considering purchasing new equipment. The purchase of the equipment is       expected to generate after tax savings of $12,600 each year for 8 years. The company can       borrow money at 6%. Assume annual compounding.         Determine the present value of the future cash inflows. Hint: the $12,600 are your annuity payments
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT