Investment Option "North" This potential investment is a little more risky and longer term, so it has a minimum rate of return of 15.60%. This investment would require an initial outlay of cash to purchase a piece of equipment for $134,000, and at the end of the 8-year life of this investment is expected to have a salvage value of $53,600. For each year of this investment, net annual cash inflows are expected to be $30,500. 1. How much is the present value of the purchase of equipment? 2. How much is the present value of the salvage value? 3. How much is the present value of the annual cash inflows? 4. How much is the Net Present Value? 5. What is the value of the Present Value Index? (round to the nearest thousandths $ $
Investment Option "North" This potential investment is a little more risky and longer term, so it has a minimum rate of return of 15.60%. This investment would require an initial outlay of cash to purchase a piece of equipment for $134,000, and at the end of the 8-year life of this investment is expected to have a salvage value of $53,600. For each year of this investment, net annual cash inflows are expected to be $30,500. 1. How much is the present value of the purchase of equipment? 2. How much is the present value of the salvage value? 3. How much is the present value of the annual cash inflows? 4. How much is the Net Present Value? 5. What is the value of the Present Value Index? (round to the nearest thousandths $ $
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:which will be the better financial option. Perform the necessary calculations using Microsoft Excel
so that maximum precision can be obtained. (Unless indicated otherwise, enter your answers
rounded to the nearest whole dollar/input code: 0).
Investment Option "North"
This potential investment is a little more risky and longer term, so it has a minimum rate of return
of 15.60%. This investment would require an initial outlay of cash to purchase a piece of
equipment for $134,000, and at the end of the 8-year life of this investment is expected to have a
salvage value of $53,600. For each year of this investment, net annual cash inflows are expected
to be $30,500.
1. How much is the present
value of the purchase of
equipment?
2. How much is the present
value of the salvage value?
3. How much is the present
value of the annual cash
inflows?
4. How much is the Net
Present Value?
5. What is the value of the
Present Value Index? (round
to the nearest thousandths
place/input code: 0.000)
$
$
$
Expert Solution
Step 1: Introduction to net present value
Net present value is the sum of present values of all cash flows associated with a project. This is based on the concept of time value of money which states that worth of money changes with passage of time. To find the present value of a cash flow we discount that cash flow using the given discount rate.
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