A New Machine Tool Is Expected to Generate Receipts as Follows

question 69

Essay

A new machine tool is expected to generate receipts as follows: $5,000 in year one; $3,000 in year two, nothing in the next year, and $2,000 in the fourth year. At an interest rate of 6%, what is the present value of these receipts?
Is this a better present value than $2,500 each year over four years?
Explain.

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Definitions:

Quantity Supplied

is the amount of a good or service that producers are willing and able to sell at a given price over a specified period of time.

Supply Increased

A situation in which the quantity of a good or service that producers are willing and able to offer for sale rises, possibly leading to lower prices.

Demand Increased

A situation where the desire or need for a product or service rises, leading to potentially higher prices and/or increased production.

Quantity Demanded

The overall volume of a good or service that individuals are prepared and capable of buying at a given price.