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Morgarella [4.7K]
3 years ago
7

DON Corp. is contemplating the purchase of a machine that will produce net after-tax cash savings of $20,000 per year for five y

ears. At the end of five years, the machine can be sold to realize after-tax cash flows of $5,000. Interest is 12%. Assume the cash flows occur at the end of each year.
Required:
Calculate the total present value of the cash savings.
Business
1 answer:
Allushta [10]3 years ago
3 0

Answer:

$74,932.66

Explanation:

Present value is the sum of discounted cash flows.

Present value can be calculated using a financial calculator

Cash flow from year 1 to 4 = $20,000

Cash flow in year 5 = $25,000

I = 12%

Present value = $74,932.66

To find the PV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you

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