Question

Charley has a typing service. he estimates that a new computer will result in increased cash inflow $1,600 in year 1, $2,000 in year 2 and $3,000 in year 3. if charley's required rate of return is 12%, the most that charley would be willing to pay for the new computer would be:

Answer 1

Ans : $ 5158. First, let us compare the Present Value of the investment with the PV of the future cash flows, discounted at 12%. The PV of 1,600, N 1, R 12%, is 1,429. The PV of 2,000, N 2, is 1,594, and the PV of 3,000, N 3, is 2,135. That's a total of 5,158.