Question

The dean of the School of Fine Arts is trying to decide whether to purchase a copy machine to place in the lobby of the building. The machine would add to student convenience, but the dean feels compelled to earn an 10 percent return on the investment of funds. Estimates of cash inflows from copy machines that have been placed in other university buildings indicate that the copy machine would probably produce incremental cash inflows of approximately $14,000 per year. The machine is expected to have a three-year useful life with a zero salvage value. (Use appropriate factor(s) from the tables provided.)
Required:
Use Present Value PV of $1 to determine the maximum amount of cash the dean should be willing to pay for a copy machine. (Round intermediate calculations and final answer to 2 decimal places.)

Answer 1

Answer:

$34,816.60

Step-by-step explanation:

The computation of the maximum amount of cash should willing to pay for the copy machine by using the present value is shown below:

Present value is

$= Incremental\ cash\ flows \times PVIFA\ factor$

where,

Incremental cash flows is $14,000 per year

Discount rate is 10%

And, the number of years is three years

PVIFA factor for 10% at 3 years is 2.4869

Refer to the PVIFA factor table

Now placing these values to the above formula

So, the present value is

$= \ 14,000 \times 2.4869$

= $34,816.60