Door to Door Moving Company is considering purchasing new equipment that costs $720,000
Its management estimates that the equipment will generate cash flows as follows:
Year 1 $218,000
2 218,000
3 258,000
4 258,000
5 150,000
Present value of $1:
6% 7% 8% 9% 10%
1 0.943 0.935 0.926 0.917 0.909
2 0.890 0.873 0.857 0.842 0.826
3 0.840 0.816 0.794 0.772 0.751
4 0.792 0.763 0.735 0.708 0.683
5 0.747 0.713 0.681 0.605 0.621
The company's annual required rate of return is 8%. Using the factors in the table, calculate the present value of the cash inflows. (Round all calculations to the nearest whole dollar.)
A) $38,804
B) $774,000
C) $884,000
D) $885,326
D .D)
Calculation of present value of cash inflows:
Cash inflows PV factors at 8% Present value
$218,000 0.926 $201,868
218,000 0.857 186,826
258,000 0.794 204,852
258,000 0.735 189,630
150,000 0.681 102,150
$885,326
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