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.

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.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 3EB: A restaurant is considering the purchase of new tables and chairs for their dining room with an...

See similar textbooks

Related questions

Q: local University is planning to invest $500,000 every 3 months in an investment which earns interest…

A: By compounding current cash flows with a specified interest rate, future value determines the future…

Q: Siemens AG invests €80 million to build a manufacturing plant to build wind turbines. The company…

A: 1.

Q: A company makes fixed annual payments to a sinking fund to replace equipment in five years’ time.…

A: Future Value of Money Required = 200,000 Time Period = 5 years Interest Rate = 10% Future Value…

Q: Your company will generate $74,000 in annual revenue each year for the next seven years from a new…

A: Present Value = future value discounted at 7.25%

Q: Josh purchased a new machine for his business. Josh expects to produce 80 products at P 100,000.00…

A: Cash flow is the flow of cash in entity. There can be inflow or outflow of cash depending upon the…

Q: A company is considering buying workstation computers to support its engineering staff. In today's…

A: Given: i = 16%, f = 10% To Find the amount of payment, first we have to calculate i: i = i - f…

Q: You buy a new piece of equipment for $16,230, and you receive a cash inflow of $2,500 per year for…

A: The internal rate of return (IRR) is the interest rate received for investment with payments and…

Q: A construction management company is examining its cash flow requirements for the next few years.…

A: Future Value: The future value is the amount that will be received at the end of a certain period.…

Q: The Dominion Freight Company has invested $50,000 in a new sorting machine that is expected to…

A: NPV is an abbreviation for Net Present Value. For example, NPV helps us to know the present value of…

Q: Monroe Corporation is considering the purchase of new equipment. The equipment will cost $42,000…

A: Annuity refers to the series of payments at regular intervals over a period of time.

Q: A construction management company is examining its cash flow requirements for the next few years.…

A: Based on the given question, the cash flows are depicted as - Years 1 2 3 4 5 6 7 8 9 10 Cash…

Q: QI/ Ipswich Corporation is considering an investment opportunity with the expected net cash inflows…

A: Hi, there, Thanks for posting the question. As per our Q&A honour code, we must answer the first…

Q: You buy a new piece of equipment for $11,778, and receive a cash inflow of $2,000 per year for 10…

A: Initial Investment is $11,778 Cash Inflow per year = $2,000 Time Period = 10 Years

Q: What is the present value of your end-of-year investment of $1,000 per year, with the first cash…

A: According to the time value concept, the purchasing power of a sum of money today is more than the…

Q: The TV company has made an investment in video and recording equipment that costs P106,700. The…

A: Average accounting rate of return = Average net profit / Average investment 0.10 = Average net…

Q: If Quail Company invests $50,000 today, it can expect to receive $10,000 at the end of each year for…

A: Net Present Value = Present value of cash inflows + Present value of salvage value - Initial…

Q: A restaurant is considering the purchase of new tables and chairs for their dining room with an…

A: Payback period = Initial investment / Annual cash flow

Q: An investment opportunity has the following characteristics: payments of $10,000 will be made to you…

A: In order to find the purchase price of investment opportunity the present value of the opportunity…

Q: Which is the correct answer? Use the following table for this question Present value of an Annuity…

A: Net present value is the difference between Present Value of cash Inflows and Initial Investment.…

Q: A company is considering an investment in equipment that can produce more efficiently than the…

A: Payback period is the number of years under which original investment amount can be recovered.

Q: If a copy center is considering the purchase of a new copy machine with an initial investment cost…

A: Payback period is a amount of time it takes to recover the investment. In other words it is a time…

Q: The project analyst of Carbon Company is considering the purchase of a new computer mainframe for P5…

A: The present value of the amount represents the current value of the future cash flows. The…

Q: You have just received a windfall from an investment you made in a friend’s business. You will…

A: a) Present value = Future value / (1 + Rate)^Time Present value = $14,050/1.06 + $3,250/1.06^2 +…

Q: Sevim wants to create a savings of 95,000 TL at the end of 30 years. For this purpose, it plans to…

A: This question had two parts we had to find future value of both parts.

Q: If Quail Company invests $46,000 today, it can expect to receive $12,000 at the end of each year for…

A: Net present value method is used to evaluate the investment projects. We can evaluate the project by…

Q: You are evaluating a growing perpetuity product from a large financial services firm. The product…

A: here is the formula for calculating the present value of growing perpetuity PV = A/(r-g) where…

Q: The value of an investment comes from its cash flows. Let’s say you are intent on receiving $45,000…

A: A concept through which it is studied that the current worth of money is higher than its future…

Q: Your company plans to invest $20,000 at the end of each year or years 1 through 5, The company will…

A: Present Value: It represents the present worth of the future amount and is computed by multiplying…

Q: LMN Corporation is considering an investment that will cost Rs 100000 and have a useful life of 4…

A: Payback period is the capital budgeting technique which represent the years required to recover the…

Q: The company is considering investing $810,000 in equipment. They expect the equipment to save…

A: Formulas: Payback period = cash out flows / Cash inflows

Q: In your company-owned business, you are contemplating to purchase a new machine for $100,000 that…

A: Investment = 100,000N = 4 yearsAnnual Revenue = 10,000Rate = 15%We need a positive Net present value…

Q: You are evaluating a growing perpetuity product from a large financial services firm. The product…

A: The cash flows that are started immediately after the investment and go on for an infinite time…

Q: QI/ Ipswich Corporation is considering an investment opportunity with the expected net cash inflows…

A: NPV is a technique of capital budgeting in which all outflows and inflows during the project’s life…

Q: Suppose a business is considering the purchase of a $40,000 machine whose operation will result in…

A: Concept: The straight line depreciation is the simplest method of charging depreciation to an asset.…

Q: A company expects to receive the following cash flows $2,000 for the first ten years and then $3,000…

A: Present value refers to the current valuation for a future sum. Investors determine the present…

Q: Company B plans to finance a project that will require an 5-year cleanup period. If it borrows $5…

A: Initial Investment “PV” = $5,000,000 Number of years “n” = 5 Interest rate “r” = 10% compounded…

Q: Spero Industries has purchased new equipment that will provide an annual cash savings of $6,300 over…

A: Solution: Annual cash savings from new equipment = $6,300 Life of project = 7 years IRR of new…

Q: A sum of £15,000 is to be invested in a Long-Term Savings Account and growth is projected at 3.25%…

A: Principal= £15,000 Interest rate=3.25% Tax rate=20% Time period=10 years Year Amount…

Q: What is the present value of your end-of-year investment of $1,000 per year, with the first cash…

A: present value formula: present value =A×1-11+rnr where, r=discount rate n=number of years

Q: QI/ Ipswich Corporation is considering an investment opportunity with the expected net cash inflows…

A: Hi, there, Thanks for posting the question. As per our Q&A honour code, we must answer the first…

Q: You invest in a piece of equipment costing $30,000. The equipment will beused for two years, at the…

A: Calculation of the equivalent net savings per machine hour is shown:

Q: Norwood Investments is putting out a new product. The product will pay out $25,000 in the first…

A: Value of perpetuity is present value of cash flow for perpetuity.

Q: You are considering an investment product that is expected to generate an annual cash flow of $2,000…

A: Annual cashflow (A) = $2000 starting after 3 years Cost of investment in year 0 (C0) = $10000 C1 =…

Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

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

Definition Definition Transfer of funds into a company by any third party, which may happen due to any operational, investing, and financing activities. The cash inflow includes payments made by customers or investments made by the investors into the company by purchasing its equity.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Conestoga Plumbing plans to invest in a new pump that is anticipated to provide annual savings for 10 years of $50,000. The pump can be sold at the end of the period for $100,000. What is the present value of the investment in the pump at a 9% interest rate given that savings are realized at year end?
You want to invest $8,000 at an annual Interest rate of 8% that compounds annually for 12 years. Which table will help you determine the value of your account at the end of 12 years? A. future value of one dollar ($1) B. present value of one dollar ($1) C. future value of an ordinary annuity D. present value of an ordinary annuity
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
Use the tables in Appendix B to answer the following questions. A. If you would like to accumulate $4,200 over the next 6 years when the interest rate is 8%, how much do you need to deposit in the account? B. If you place $8,700 in a savings account, how much will you have at the end of 12 years with an interest rate of 8%? C. You invest $2,000 per year, at the end of the year, for 20 years at 10% interest. How much will you have at the end of 20 years? D. You win the lottery and can either receive $500,000 as a lump sum or $60,000 per year for 20 years. Assuming you can earn 3% interest, which do you recommend and why?
A restaurant is considering the purchase of new tables and chairs for their dining room with an initial investment cost of $515,000, and the restaurant expects an annual net cash flow of $103,000 per year. What is the payback period?
Calculate the present value of the cash savings: Samson Inc. is contemplating the purchase of a machine that will provide it with the net after-tax cash savings of $100,000 per year for eight years. Interest is 10%. Assume the cash savings occur at the end of each year.
You buy a new piece of equipment for $11,778, and receive a cash inflow of $2,000 per year for 10 years. What is the internal rate of return?
You are evaluating a growing perpetuity product from a large financial services firm. The product promises an initial payment of $25,000 at the end of this year and subsequent payments that will thereafter grow at a rate of 0.05 annually. If you use a discount rate of 0.08 for investment products, what is the present value of this growing perpetuity? Round to two decimal places.
You plan to make a lump-sum deposit of $5000 now into an investment account that pays 6% per year, and you plan to withdraw an equal end-of-year amount of $1000 for 5 years, starting next year. At the end of the sixth year, you plan to close your account by withdrawing the re- maining money. Define the engineering economy symbols involved.
You expect to deposit the following cash flows at the end of years one (1) through to five (5), $1, 000, $4, 000, $9, 000, $5, 000 and $2, 000 respectively. What is the future value at the end of year six (6) if you can earn 10% compounded annually?
You estimate that the little drive-through coffee kiosk you own will generate ordinary annuity after-tax cash flows of $150,000 per year for the next six years. If you discount these cash flows at an annual rate of 14%, what is the present value of your expected cash flows?
You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment? Group of answer choices The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for 10 years rather than 5 years, hence that each payment is for $10,000 rather than for $20,000. The discount rate decreases. The riskiness of the investment's cash flows increases. The total amount of cash flows remains the same, but more of the cash flows are received in the later years and less are received in the earlier years. The discount rate increases.