Question

# Syth Corporation is considering purchasing a new machine. The machine is expected to have a life...

Syth Corporation is considering purchasing a new machine. The machine is expected to have a life of six years. Syth estimates that the machine will bring in \$4,000 of additional revenue each year and will cost \$1,500 each year to operate. Syth Corporation can earn an interest rate of 6% on its funds, so this is considered the appropriate discount rate to use for capital budgeting decisions. What is the most that Syth Corporation should be willing to pay for this equipment today? \$__________

 Cash flow= Additional revenue - Cost Cash flow= \$ 4000- \$ 1500 Cash Flow= \$ 2500 Since No Tax rate is Given in question CFBT= CFAT Year CFAT A (\$) PV Factor B 6% Present Value A * B (\$) 1 2500 0.9434 2358.5 2 2500 0.8900 2225 3 2500 0.8396 2099 4 2500 0.7921 1980.25 5 2500 0.7473 1868.25 6 2500 0.705 1762.5 TotaPresent value of Cash inflow 12293.5 TotaPresent value of Cash inflow so if equipment cost is max \$ 12293.5 Syth Corporation will not bear any loss their for Syth Corporation Should willing to pay max \$ 12293.5 for brekeeven NPV

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