Question

Pittsburgh Custom Products (PCP) purchased a new machine for ram-cambering large I beams. PCP expects to bend 55 beams at S3,000 per beam in each of the first 3 years, after which it expects to bend 100 beams per year at $2,700 per beam through year 11 If the company's minimum attractive rate of return is 16% per year, what is the present worth of the expected revenue? The present worth of the expected revenue is S

Answer 1

Please find below.......

we have to compute the present value by multiplying cash flow * discount factor
Computation of cash flow
i	ii		iii		iv=ii*iii
Year	revenue		PVIF @ 16%		present value
1	165000	=55*3000	0.8621		142,241.38
2	165000	=55*3000	0.7432		122,621.88
3	165000	=55*3000	0.6407		105,708.52
4	270000	=100*2700	0.5523		149,118.60
5	270000	=100*2700	0.4761		128,550.51
6	270000	=100*2700	0.4104		110,819.41
7	270000	=100*2700	0.3538		95,533.97
8	270000	=100*2700	0.3050		82,356.87
9	270000	=100*2700	0.2630		70,997.30
10	270000	=100*2700	0.2267		61,204.57
11	270000	=100*2700	0.1954		52,762.56
present value					1,121,915.58
Therefore present value =					1,121,915.58