A company is consideringwhether to buy a newmachine, which costs $97,000. The cash flows
Chapter 1, Problem 42(choose chapter or problem)
A company is consideringwhether to buy a newmachine, which costs $97,000. The cash flows (adjusted for taxes and depreciation) that would be generated by the new machine are given in the following table: Year 1 2 3 4 Cash flow $50,000 $40,000 $25,000 $20,000 (a) Find the total present value of the cash flows. Treat each years cash flow as a lump sum at the end of the year and use an interest rate of 7.5% per year, compounded annually. (b) Based on a comparison of the cost of the machine and the present value of the cash flows, would you recommend purchasing the machine? 4
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