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- Read Publishing is considering the purchase of a used printing press costing
$84,200. The printing press would generate a net cash inflow of $37,422 a year for 3 years. At the end of 3 years, the press would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation. The present value factors of an annuity of $1.00 for different rates of return are as follows:
| Cost of Capital | ||||
Period | 8% | 10% | 12% | 14% | 16% |
2 | 1.78 | 1.74 | 1.69 | 1.65 | 1.61 |
3 | 2.58 | 2.49 | 2.40 | 2.32 | 2.25 |
4 | 3.31 | 3.17 | 3.04 | 2.91 | 2.80 |
The investment’s net present value is:
- $ 5,480
- $ 19,200
- $ 76,800
- $ 8,981
- Read Publishing is considering the purchase of a used printing press costing $84,200. The printing press would generate a net cash inflow of $37,422 a year for 3 years. At the end of 3 years, the press would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation. The present value factors of an annuity of $1.00 for different rates of return are as follows:
| Cost of Capital | ||||
Period | 8% | 10% | 12% | 14% | 16% |
2 | 1.78 | 1.74 | 1.69 | 1.65 | 1.61 |
3 | 2.58 | 2.49 | 2.40 | 2.32 | 2.25 |
4 | 3.31 | 3.17 | 3.04 | 2.91 | 2.80 |
The investments internal rate of return (rounded to the nearest percent) is:
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