Question

Molly Grant is considering whether to install a drink machine at the gas station she owns. Molly is convinced that providing a drink machine at the station would increase customer convenience. However, she is not convinced that buying the machine would be a profitable investment. Friends who have installed drink machines at their stations have estimated that she could expect to receive net cash inflows of approximately $5,000 per year from the machine. Molly believes that she should earn 8 percent on her investments. The drink machine is expected to have a two-year life and zero salvage value.

Required
Round your computations to two decimal points.
a. Use Present Value Table 1 to determine the maximum amount of cash Molly should be willing to pay for a drink machine.
b. Use Present Value Table 2 to determine the maximum amount of cash Molly should be willing to pay for a drink machine.
c. Explain the consistency or lack of consistency in the answers to Requirement a versus Requirement b.



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  • CreatedFebruary 07, 2014
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