Equal Net Annual Cash Flows
Tappan Company's net annual cash flows are $26,000. If we assume this amount
is uniform
over the asset's useful life
, we can compute the present value of the net annual cash flows by
using the present value of an annuity of 1 for 10 periods (in Table 2, Appendix
C
). The
computations at rates of return of 12% and 15%, respectively, are:
Illustration 2323 Present value of net annual cash flows
The analysis of the proposal by the net present value method is as follows:
Illustration 2324 Computations of net present value
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View Full DocumentThe ABC Co. expects equal cash flows
over an asset's 5year useful life.
What discount factor should it use in
determining present values if
management wants (1) a 12% return or
(2) a 15% return?
The proposed capital expenditure is acceptable at a required rate of return of both 12% and 15%
because the net present values are positive.
Unequal Net Annual Cash Flows
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 Fall '11
 
 Net Present Value, annual cash flows, net annual cash

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