Lloyd's Moving Company Is Considering Purchasing New Equipment That Costs

question 57

Multiple Choice

Lloyd's Moving Company is considering purchasing new equipment that costs $728,000.Its management estimates that the equipment will generate cash flows as follows: $$\begin{array} { | r | c | } \hline \text { Year 1 } & \$ 206,000 \\\hline 2 & 206,000 \\\hline 3 & 254,000 \\\hline 4 & 254,000 \\\hline 5 & 156,000 \\\hline\end{array}$$ Present value of $1:
$$\begin{array} { | l | r | r | r | r | r | } \hline & { 6 \% } &{ 7 \% } & { 8 \% } & { 9 \% } & 10 \% \\\hline 1 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\\hline 2 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \\\hline 3 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \\\hline 4 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 \\\hline 5 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \\\hline\end{array}$$ The company's annual required rate of return is 9%.Using the factors in the table,calculate the present value of the cash flows.(Round all calculations to the nearest whole dollar.)

• A) $870,000
• B) $839,674
• C) $853,320
• D) $872,000

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Definitions:

Balance Sheet

A summarization capturing the value of assets, liabilities, and equity from shareholders of a company at an exact moment.

Income Statement

A financial statement that shows a company's revenues, expenses, and profit over a specific period.

Cost Principle

An accounting principle that requires assets, liabilities, equity, and expenses to be recorded at their original cost.

Market Value

The market's current rate for transactions involving the purchase or sale of an asset or service.