Benz Company is considering the purchase of a machine that costs $100,000 and has a useful life of 18 years with no salvage value.The company's required discount rate is 12%.If the machine's net present value is $5,850,then the annual cash inflows associated with the machine must be (round to the nearest whole dollar):
A) $13,760.
B) $14,600.
C) $42,413.
D) it is impossible to determine from the data given.

Question

Quizplus · Accepted Answer

If the machine's net present value is $5,850, and the required discount rate is 12%, then we can calculate the initial cash outflow for purchasing the machine as follows:

$100,000/(1+0.12)^0 = $100,000

Then, we can use the net present value formula to calculate the annual cash inflows:

$5,850 = Annual Cash Inflows / (1+0.12)^0 + Annual Cash Inflows / (1+0.12)^1 + ... + Annual Cash Inflows / (1+0.12)^17

Solving for Annual Cash Inflows, we get $14,600. Therefore, the annual cash inflows associated with the machine must be $14,600.

Benz Company Is Considering the Purchase of a Machine That