Figure 14-10. Present Value of $1

question 62

Essay

Figure 14-10.
Present value of $1
Present value of an Annuity of $1
Refer to Figure 14-10.Ray Corporation is looking to invest in a new piece of equipment.Two manufacturers of this type of equipment are being considered.After-tax inflows for the two competing projects are:
Both projects require an initial investment of $400,000.In both cases,assume that the equipment has a life of five years with no salvage value.
Required:
A.Assuming a discount rate of 8 percent,compute the net present value of each piece of equipment.
B.A third option is now available for a supplier outside of the country.The cost is also $400,000,but it will produce even cash flows over its five-year life.What must the annual cash flow be for this equipment to be selected over the other two? Assume an 8 percent discount rate.

---

Definitions:

Menstruating

The monthly biological process in females of reproductive age where the lining of the uterus sheds, accompanied by bleeding, marking a normal reproductive cycle.

Generalized Anxiety Disorder

Disorder in which a person has feelings of dread and impending doom along with physical symptoms of stress, which lasts 6 months or more.

Biological Perspective

An approach to psychology focusing on physical and biological bases of behavior, including genetic, hormonal, and neurophysiological processes.

Amygdala

Brain structure located near the hippocampus, responsible for fear responses and memory of fear.