Paramount Company Is Considering Purchasing New Equipment Costing $700,000 The Company's Required Rate of Return Is 10

question 74

Multiple Choice

Paramount Company is considering purchasing new equipment costing $700,000. Company's management has estimated that the equipment will generate cash flows as follows: $$\begin{array} { | c | r | } \hline \text { Year 1 } & \$ 200,000 \\\hline 2 & 200,000 \\\hline 3 & 250,000 \\\hline 4 & 250,000 \\\hline 5 & 150,000 \\\hline\end{array}$$ The company's required rate of return is 10%. Using the factors in the table below, calculate the present value of the cash inflows. Present value of $1:
$$\begin{array} { | r | r | r | r | r | r | } \hline & { 6 \% } & { 7 \% } & { 8 \% } & { 9 \% } & { 10 \% } \\\hline 1 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\\hline 2 & 0.89 & 0.873 & 0.857 & 0.842 & 0.826 \\\hline 3 & 0.84 & 0.816 & 0.794 & 0.772 & 0.751 \\\hline 4 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 \\\hline 5 & 0.747 & 0.713 & 0.681 & 0.65 & 0.621 \\\hline\end{array}$$

• A) $765,000
• B) $768,921
• C) $798,650
• D) $780,000

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