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Madeline Company is proposing to spend $200,000 to purchase a machine that will provide annual cash flows of $38,000. The appropriate present value factor for 10 periods is 5.65.
The present value of $150,000 in annual cash flows given a 10% required rate of return will be: (a) greater than the present value given a 12% required rate of return. (b) less than the present value given a 12% required rate of return. (c) equal to the present value given a 12% required rate of return. (d) unknown because it depends on the timing of the cash flows. Will appreciate the steps to solving this question.
Thank you!