Was the present value of lump sum used in problem

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Reference no: EM132520208

Starry Night Cafe is considering the purchase of new equipment that would cost them $50,000. You have estimated that the new equipment would generate the following cash inflows for the next four years:

Cash Inflows

Year 1                10,000
Year 2                15,000
Year 3                 15,000
Year 4                   25,000

Question a. Calculate the net present value of this investment by using a discount rate of 9% and the P.V. Table depicted below. of $1

  • 1904
  • 1693

Question b. Was the present value of a lump sum or an annuity used in this problem and why?

Question c. What is the profitability index for this investment?

Question d. If the cafe compared the profitability index in (b.) to another investment that yields 1.2. Which option would you decide to invest in and why?

Reference no: EM132520208

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