Kanye Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the...

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Kanye Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the manufacture of a new product. Th

Snyder Company is considering purchasing equipment. The equipment will produce the following cash inflows: Year 1, $25,000; Y

business accounting

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Answer 1

Answer #1

Solution 1:

Present value factor at IRR = Initial investment / Annual cash inflows = $168,000 / $35,652 = 4.7122

Refer PV factor table at 7 years, this factor falls at IRR = 11%

Solution 2:

Maximum price to be paid for equipment = Present value of future cash inflows

Period	Cash Inflows	PV factor	Present value
1	$25,000.00	0.92593	$23,148.25
2	$28,000.00	0.85734	$24,005.52
3	$36,500.00	0.79383	$28,974.80

	Maximum price		$76,128.57

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Answer 2

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