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Daniel Jackson owns a garage and is contemplating purchasing a tire retreading machine for $15,500
Daniel Jackson owns a garage and is contemplating purchasing a tire retreading machine for $15,500. After estimating costs and revenues, Daniel projects a net cash inflow from the retreading machine of $3,410 annually for 7 years. Daniel hopes to earna return of 9% on such investments. What is the present value of the retreading operation? Should Daniel Jackson purchase the retreading machine? (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (Round answer to 2 decin places, eg. 15.25.) Click here to view the factor table. (a) The present value of the retreading operation is (b) Daniel Jackson purchase the retreading machine.
Expert Solution
(a). Net Present value $ 1,663.37
|
Year |
Cash Flow |
Discount Factor at 9 % |
Discounted Cash flow |
|
1 |
$ 3,410 |
0.91743 |
3128.44 |
|
2 |
$ 3,410 |
0.84168 |
2871.13 |
|
3 |
$ 3,410 |
0.77218 |
2633.14 |
|
4 |
$ 3,410 |
0.70843 |
2415.75 |
|
5 |
$ 3,410 |
0.64993 |
2216.26 |
|
6 |
$ 3,410 |
0.59627 |
2033.28 |
|
7 |
$ 3,410 |
0.54703 |
1865.37 |
|
Total Present Value |
$ 17,163.37 |
||
|
Less: Investment |
$ 15,500 |
||
|
Net Present Value |
$ 1,663.37 |
(b). Daniel Jackson should be purchase the retreading machine. Because of net present value show positive result...
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