Chapter 10, Problem 10.22E

Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, he expects demand to stabilize. The following table presents the expected cash flows: Year of Operation Year 1 Year 2 Year 3 Year 4 Cash Inflow Cash Outflow $41,000 45,000 48,000 48,000 $20,000 24,000 26,000 26,000 In addition to these cash flows, Aaron expects to pay $33,000 for the equipment. He also expects to pay $7,200 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $5,600 salvage value and a four-year useful life. Aaron desires to earn a rate of return of 6 percent. (PV of $1 and PVA of $1) Note: Use…

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