3) Spinelli Company is deciding whether to automate one phase of its production process. The equipment...
3) Spinelli Company is deciding whether to automate one phase of its production process. The equipment has a six year life and will cost $450,000. The interest rate is 12%. Net cash inflows per year:
|
Year 1 |
$85,000 |
|
Year 2 |
$70,000 |
|
Year 3 |
$95,000 |
|
Year 4 |
$75,000 |
|
Year 5 |
$85,000 |
|
Year 6 |
$96,000 |
a.What is the present value of the net inflow for year 1?
b.What is the present value of the net inflow for year 5?
Homework Answers
a.What is the present value of the net inflow for year 1?
= $85000*1/(1+0.12)^1=85000*0.893
=$75905
b.What is the present value of the net inflow for year 5?,
=$85000*1/(1+0.12)^5=85000*0.567
=$48195
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