Question

In: Accounting

Superior Printing is considering a capital investment for a new printing press with a ten-year life....

Superior Printing is considering a capital investment for a new printing press with a ten-year life. Superior’s cost of capital is 10%. Relevant cash flows and related present value factors are as follows:

Investment in printing press = $240,000.
Investment in working capital items = $10,000
Annual net cash inflow from operating the press = $40,000.
Salvage value of the press = $18,000.
Present value of $1 (10 Years @ 10%) = 0.3855
Present value of an annuity of $1 (10 Years @ 10%) = 6.1446

The present value of the annual net cash inflows from operating the press is:

  • $15,420.

  • $245,784.

  • $40,000.

  • $5,378.

Solutions

Expert Solution

Option 2nd is correct. $245,784.

The present value of the annual net cash inflows from operating the press is
                                    = Annual net cash inflow*Present value of $1 (10 Years @ 10%)
                                                           =$40,000* 6.1446
                                                            = $2,45,784

ekkarill92 answered 1 year ago
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