Pablo Company is considering buying a machine that will yield income of $2,700 and net cash flow of $18,400 per year forthree years. The machine costs $58,500 and has an estimated $11,400 salvage value. Pablo requires a 5% return on itsinvestments. Compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Useappropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round yourpresent value factor to 4 decimals.)Years 1-3TotalsNet present valuePresent Value ofNet Cash FlowsXPV FactorNet Cash Flows$0=0===

Explanation:Step 1:Calculate the present value of the net cash flows:Net cash flow per year:…

Answered: Pablo Company is considering buying a…

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 3CMA

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Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Bouvier Restaurant is considering an investment in a grill that costs $140,000, and will produce annual net cash flows of $21,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether Bouvier should invest in the grill.
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