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You have just been offered a contract worth $ 1.24 million per year for 7 years.?...

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Finance

You have just been offered a contract worth $ 1.24 million peryear for 7 years.? However, to take the? contract, you will need topurchase some new equipment. Your discount rate for this project is11.6 %. You are still negotiating the purchase price of theequipment. What is the most you can pay for the equipment and stillhave a positive NPV??

The most you can pay for the equipment and achieve the 11.6%annual return is ?$___ million. ?(Round to two decimal?places.)

Answer & Explanation Solved by verified expert
4.4 Ratings (725 Votes)

i ii iii=i*ii
Year Cash flow PVIF @ 11.6% present value
1 1.24 0.896057          1.11
2 1.24 0.802919          1.00
3 1.24 0.719461          0.89
4 1.24 0.644679          0.80
5 1.24 0.577669          0.72
6 1.24 0.517625          0.64
7 1.24 0.463821          0.58
         5.73 million
therefore answer is 5.72 mil (its not 5.73mil becauase at 5.73 we will have ZERO NPV and we
need to have positive NPV therfore putting 0.01mil higher amount for the answer.

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Transcribed Image Text

You have just been offered a contract worth $ 1.24 million peryear for 7 years.? However, to take the? contract, you will need topurchase some new equipment. Your discount rate for this project is11.6 %. You are still negotiating the purchase price of theequipment. What is the most you can pay for the equipment and stillhave a positive NPV??The most you can pay for the equipment and achieve the 11.6%annual return is ?$___ million. ?(Round to two decimal?places.)

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