Question

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? $__________

Answer 1

		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