Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter he expects demand to stabilize. The following table presents the expected cash flows: Year of Operation Year 1 Year 2 Year 3 Year 4 Cash Inflow $12,700 19,600 21, 200 21, 200 Cash Outflow $ 9,900 11,600 12,600 12,600 In addition to these cash flows, Aaron expects to pay $20,900 for the equipment. He also expects to pay $3,200 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $1,900 salvage value and a four year useful life. Aaron desires to earn a rate of return of 9 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter he expects demand to stabilize. The following table presents the expected cash flows: Year of Operation Year 1 Year 2 Year 3 Year 4 Cash Inflow $12,700 19,600 21, 200 21, 200 Cash Outflow $ 9,900 11,600 12,600 12,600 In addition to these cash flows, Aaron expects to pay $20,900 for the equipment. He also expects to pay $3,200 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $1,900 salvage value and a four year useful life. Aaron desires to earn a rate of return of 9 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 1PA: Your company is planning to purchase a new log splitter for is lawn and garden business. The new...
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