Present Value of 1 at 10% Present Value of Cash Flows Cumulative Present Value Year Cash Flows of Cash Flows $190,000) 1.0000 1 35,000 0.9091 2 35,000 0.8264 3 35,000 0.7513 4 35,000 0.6830 35,000 0.6209 *All cash flows occur at year-end.
Present Value of 1 at 10% Present Value of Cash Flows Cumulative Present Value Year Cash Flows of Cash Flows $190,000) 1.0000 1 35,000 0.9091 2 35,000 0.8264 3 35,000 0.7513 4 35,000 0.6830 35,000 0.6209 *All cash flows occur at year-end.
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 1MC
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Question
Heels, a shoe manufacturer, is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. The customer would have his or her foot scanned by digital computer equipment; this information would be used to cut the raw materials to provide the customer a perfect fit. The new equipment costs $90,000 and is expected to generate an additional $35,000 in cash flows for five years. A bank will make a $90,000 loan to the company at a 10% interest rate for this equipment’s purchase. Use the following table to determine the break-even time for this equipment. (Round the present value of cash flows to the nearest dollar.)
Transcribed Image Text:Present Value
of 1 at 10%
Present Value
of Cash Flows
Cumulative Present Value
Year
Cash Flows
of Cash Flows
$190,000)
1.0000
1
35,000
0.9091
2
35,000
0.8264
3
35,000
0.7513
4
35,000
0.6830
35,000
0.6209
*All cash flows occur at year-end.
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