E4A

 

For each of the following situations, identify the correct factor to use from Tables 1 or @ in Appendix C.  Also compute the appropriate present value.

 

1.      Annual net cash inflows of $22,500 for a period of twelve years, discounted at 14 percent.

2.      The following five years of cash inflows, discounted at 10 percent:

 

Year 1                         $35,000

Year 2                           20,000

Year 3                           30,000

Year 4                           40,000

Year 5                           50,000

3.      The amount of $70,000 to be received at the beginning of year 7, discounted at 14 percent.

 

 

 

E9A

 

Eco Wet, Inc., a manufacturer of gears for lawn sprinklers, is thinking about adding a new fully automated machine.  This machine can produce gears that the company now produces on its third shift.  The machine has an estimated useful life of ten years and will cost $500,000.  The residual value of the new machine is $50,000.  Gross cash revenue from the machine will be about $420,000 per year, and related operating expenses, including depreciation, should total $400,000.  Depreciation is estimated to be $80,000 annually.  The payback period should be five years or less.  Use the payback period method to determine whether the company should invest in the new machine.  Show the computations that support your answer.