Poe Company is considering the purchase of new equipment costing $81,500. The projected net cash flows are $36,500 for the first two years and $31,500 for years three and four. The revenue is to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Poe requires a 10% return on its investments. The present value of $1 and the present value of an annuity of $1 for different periods are presented below.
Compute the net present value of the machine.
| Periods | Present Value of $1 at 10% | Present Value of an Annuity of $1 at 10% |
|---|---|---|
| 1 | 0.9091 | 0.9091 |
| 2 | 0.8264 | 1.7355 |
| 3 | 0.7513 | 2.4869 |
| 4 | 0.6830 | 3.1699 |
Given the following information below.
Initial investment = 165,000
Annual net income = 18,000
Useful life = 12 years
Straight line method with no salvage value
Cost of capital = 16%
What is the net present value?
You are evaluating a growing perpetuity product from a large financial services firm. The product promises an initial payment of $22,000 at the end of this year and subsequent payments that will thereafter grow at a rate of 0.05 annually.
If you use a discount rate of 0.07 for investment products, what is the present value of this growing perpetuity?
