Present Value Computations
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Present Value Computations
Two machines - Machine M and Machine P - are being considered in a replacement decision. Both machines have about the same purchase price and an estimated ten-year life. The company uses a 12 percent minimum rate of return as its acceptance-rejection standard. The estimated net cash inflows for each machine follow.
| Year | Machine M | Machine P | |
| 1 | $12,000 | $17,500 | |
| 2 | 12,000 | 17,500 | |
| 3 | 14,000 | 17,500 | |
| 4 | 19,000 | 17,500 | |
| 5 | 20,000 | 17,500 | |
| 6 | 22,000 | 17,500 | |
| 7 | 23,000 | 17,500 | |
| 8 | 24,000 | 17,500 | |
| 9 | 25,000 | 17,500 | |
| 10 | 20,000 | 17,500 | |
| Residual value | 14,000 | 12,000 |
1. Compute the present value of future cash flows for each machine, using Table 1 and Table 2.
| Total Present Value | |
| Machine M | $ |
| Machine P | $ |
11 years ago
Present Value Computations
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