Question

Johnson Manufacturing is considering investing $80,000 in a new piece of machinery that will generate net annual cash flows of $30,000 each year for the next 7 years. The machine has a salvage value of $10,000 at the end of its 7 year useful life. Johnson's cost of capital and discount rate is 8%. What is the dollar amount that we would multiply the factor by when using the PV of an Annuity table? $30,000 $80,000 o oo $10,000 $210,000

Answer 1

Answer -

A) $30000

Explanation

While calculating the NPV for a project if the annual cash flows are same for each year then we consider the given amount of cash flow as yearly given i.e $30000 because the PV of annuity table is already at cummulative total of discounting factor.

B) $5694.24

_{A = P (1 + r/n) ^(nt)}

A= future value

P = Intial deposit

r = interest rate annual

8000 = P(1+12/1)^1*3

P = 8000/1.404928

Amount will be = $5694.24