erry owns a restaurant and has the opportunity to buy a high-quality espresso coffee machine for $5,000. After carefully studying projected costs and revenues, Jerry estimates that the machine will produce a net cash flow of $1,600 annually and will last for five years. He determines that an interest rate of 10% is an adequate return on investment for his business. Calculate the present value of the machine to Jerry. Based on your calculation, do you think a decision to purchase the machine would be wise?
erry owns a restaurant and has the opportunity to buy a high-quality espresso coffee machine for $5,000. After carefully studying projected costs and revenues, Jerry estimates that the machine will produce a net cash flow of $1,600 annually and will last for five years. He determines that an interest rate of 10% is an adequate return on investment for his business. Calculate the present value of the machine to Jerry. Based on your calculation, do you think a decision to purchase the machine would be wise?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Jerry owns a restaurant and has the opportunity to buy a high-quality espresso coffee machine for $5,000. After carefully studying projected costs and revenues, Jerry estimates that the machine will produce a net
Calculate the present value of the machine to Jerry. Based on your calculation, do you think a decision to purchase the machine would be wise?
Transcribed Image Text:Present Value of $1
Periods
1.0%
2.0%
3.0%
3.75%
4.0%
4.25%
5.0%
1
0.99010
0.98039
0.97087
0.96386
0.96154
0.95923
0.95238
2
0.98030
0.96117
0.94260
0.92902
0.92456
0.92013
0.90703
0.97059
0.94232
0.91514
0.89544
0.88900
0.88262
0.86384
4
0.96098
0.92385
0.88849
0.86307
0.85480
0.84663
0.82270
0.95147
0.90573
0.86261
0.83188
0.82193
0.81212
0.78353
6.
0.94205
0.88797
0.83748
0.80181
0.79031
0.77901
0.74622
7
0.93272
0.87056
0.81309
0.77283
0.75992
0.74725
0.71068
8
0.92348
0.85349
0.78941
0.74490
0.73069
0.71679
0.67684
9.
0.91434
0.83676
0.76642
0.71797
0.70259
0.68757
0.64461
10
0.90529
0.82035
0.74409
0.69202
0.67556
0.65954
0.61391
Transcribed Image Text:Present Value of Annuity of $1
Periods
1.0%
2.0%
3.0%
3.75%
4.0%
4.25%
5.0%
1
0.99010
0.98039
0.97087
0.96386
0.96154
0.95923
0.95238
2
1.97040
1.94156
1.91347
1.89287
1.88609
1.87936
1.85941
3
2.94099
2.88388
2.82861
2.78831
2.77509
2.76198
2.72325
4
3.90197
3.80773
3.71710
3.65138
3.62990
3.60861
3.54595
4.85343
4.71346
4.57971
4.48326
4.45182
4.42073
4.32948
5.79548
5.60143
5.41719
5.28507
5.24214
5.19974
5.07569
7
6.72819
6.47199
6.23028
6.05790
6.00205
5.94699
5.78637
8
7.65168
7.32548
7.01969
6.80280
6.73274
6.66378
6.46321
9.
8.56602
8.16224
7.78611
7.52077
7.43533
7.35135
7.10782
10
9.47130
8.98259
8.53020
8.21279
8.11090
8.01089
7.72173
Expert Solution
Step 1
Net present value means the difference between the present value of cash inflow and present value of cash outflow.
If it is positive , then project should be accepted , otherwise rejected.
Necessary calculations has been made.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
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.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education