Question

DON Corp. is contemplating the purchase of a machine that will produce cash savings of $31,000 per year for five years. At the end of five years, the machine can be sold to realize cash flows of $6,100. Interest is 10%. Assume the cash flows occur at the end of each year.

Required:
Calculate the total present value of the cash savings.

Answer 1

Present value=Cash flows*Present value of discounting factor(rate%,time period)

=31,000/1.1+31,000/1.1^2+31,000/1.1^3+31,000/1.1^4+31,000/1.1^5+6100/1.1^5

which is equal to

=$121302.01(Approx).