Incognito Company is contemplating the purchase of a machine that provides it wi
ID: 2482266 • Letter: I
Question
Incognito Company is contemplating the purchase of a machine that provides it with net after-tax cash savings of $86,000 per year for 6 years. Assuming a 7% discount rate, calculate the present value of the cash savings. (FV of $1,PV of $1, FVA of $1, and PVA of $1). (Use appropriate factor(s) from the tables provided. Round final answer to the nearest whole dollar.)
Incognito Company is contemplating the purchase of a machine that provides it with net after-tax cash savings of $86,000 per year for 6 years. Assuming a 7% discount rate, calculate the present value of the cash savings. (FV of $1,PV of $1, FVA of $1, and PVA of $1). (Use appropriate factor(s) from the tables provided. Round final answer to the nearest whole dollar.)
Explanation / Answer
present value of the cash savings = net after-tax cash savings* present value annuity factor
present value annuity factor = 1-(1+r) -n / r
present value annuity factor = 1-(1+0.07) -6 / 0.07 = 4.77
present value of the cash savings = 86000*4.77 = 410220