Answer:
Computation of revised amounts:
Available Data
Original
Amounts
Revised Amounts
Cost of equipment (zero residual value)
$800,000
$880,000 (=$800,000X110%)
Cost of ink and paper supplies (purchase
immediately)
$100,000
$110,000 (=$100,000X110%)
Annual cash flow savings from Wall Decor
$175,000
$157,500 (=$175,000X90%)
Annual additional store cash inflow from
increased sales
$100,000
$90,000 (=$100,000X90%)
Sale of ink and paper supplies at end of 5 years
$50,000
$45,000 (=$50,000X90%)
Present value of net cash flows:
Annual cash flow savings for Wall Decor = $157,500 X 3.60478* = $567,753
Annual additional store cash flow from increased sales = $90,000 X 3.60478 = $324,430
Sale of ink and paper supplies at end of 5 years = $45,000 X 0.56743** = $25,534
Present value of net cash flows = $567,753 + $324,430 + $25,534 = $917,717
*Present value of an annuity of 1 for 5 years at 12% = 3.604787
**Present value of 1 for 5 years at 12% = 0.56743