Question

Snyder Company is considering purchasing equipment. The equipment will produce the following cash inflows: Year 1, $26,500; Year 2, $29,500; and Year 3, $39,000. Snyder requires a minimum rate of return of 12%.

Click here to view the factor table.

(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

What is the maximum price Snyder should pay for this equipment? (Round answer to 2 decimal places, e.g. 25.25.)

Maximum price

$

Answer 1

Answer)

Calculation of maximum price that the company will be willing to pay for the equipment

Maximum price to be paid for the equipment will be equal to the present value of Net cash inflows discounted at minimum rate of return (i.e. 12%).

Present value of Net cash inflows:

Year	Net Cash Inflows	Present value factor at 12%	Present Value
1	$26,500	0.89286	23,660.79
2	$29,500	0.79719	23,517.11
3	$39,000	0.71178	27,759.42
Total	74,937.32

Therefore the maximum price that the company will be willing to pay for the machine is $ 74,937.32