Phil Emley owns a garage and is contemplating purchasing a tire retreading machi
ID: 2460194 • Letter: P
Question
Phil Emley owns a garage and is contemplating purchasing a tire retreading machine for $18,000. After estimating costs and revenues, Phil projects a net cash flow from the retreading machine of $2,600 annually for 12 years. Phil hopes to earn a return of 10 % on such investments.
Click here to view the factor table.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
What is the present value of the retreading operation? (Round answer to 2 decimal places, e.g. 25.25.)
Explanation / Answer
DISCOUNTED CASH INFLOW
= NET CASH INFLOW ANNUALY * DISCOUNTED TABLE FACTOR OF 12 YEARS
= 2600 * 6.81369
= $17715.594
NET PRESENT VALUE = DISCOUNTED CASH INFLOW - CASH OUTFLOW
= 17715.594 - 18000
=( $284.406)