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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 1 year ago
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