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Patterson Company is considering two competing Investments. The first is for a standard piece of production equipment. The se
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Answer #1

Patterson Company

Standard equipment:

Years cash flow PVF @ 18% discounted cash flow PVF @ 10% discounted cash flow
0 (500,000) 1 (500,000) (500,000)
1 300,000 0.847 254,100 0.909 272,700
2 200,000 0.718 143,600 0.826 165,200
3-10 100,000 2.928 292,800 2.055 205,500
Net present value 190,500 143,400

CAM equipment:

Year cash flow PVF @ 18% discounted cash flow PVF @ 10% discounted cash flow
0 (20,00,000) 1 (20,00,000) 1 (20,00,000)
1 100,000 0.847 84,700 0.909 90,900
2 200,000 0.718 143,600 0.826 165,200
3 300,000 0.609 182,700 0.751 225,300
4-6 400,000 1.323 529,200 1.868 747,200
7 500,000 0.314 157,000 0.513 256,500
8-10 1000,000 0.683 683,000 1.276 1276,000
Net present value (219,800) 761,100

* Present value Factor are rounded off to 3 decimals.

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