Charley has a typing service. He estimates that a new computer will result in in
ID: 2491355 • Letter: C
Question
Charley has a typing service. He estimates that a new computer will result in increased cash inflow $2,300 in Year 1, $2,700 in Year 2 and $3,500 in Year 3. (Ignore income taxes.) Click here to view Exhibit 13B-1 to determine the appropriate discount factor(s) using tables. If Charley's required rate of return is 6%, the most that Charley would be willing to pay for the new computer would be: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.) $7,053 $6,872 $4,703 $7,512
Explanation / Answer
calculation of NPV of incremental benefit of new computer:
Charles will get additional benmefit of $ 7512 on installation of new computer So, he would be willingto pay maximum $ 7512.
Year Inceremental Cash Flows PVF @ 6% PV 1 2300 0.9434 2170 2 2700 0.8900 2403 3 3500 0.8396 2940 7512