Question

The dean of the School of Fine Arts is trying to decide whether to purchase a copy machine to place in the lobby of the building. The machine would add to student convenience, but the dean feels compelled to earn an 8 percent return on the investment of funds. Estimates of cash inflows from copy machines that have been placed in other university buildings indicate that the copy machine would probably produce incremental cash inflows of approximately $20,000 per year. The machine is expected to have a three-year useful life with a zero salvage value.

Required
Round your figures to two decimal points.
a. Use Present Value Table 1 in the Appendix to determine the maximum amount of cash the dean should be willing to pay for a copy machine.
b. Use Present Value Table 2 in the Appendix to determine the maximum amount of cash the dean should be willing to pay for a copy machine.
c. Explain the consistency or lack of consistency in the answers to Requirements a and b.



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  • CreatedFebruary 07, 2014
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