You are contemplating the purchase of an office building. Next year net rental income will be $400,000, which will grow at 4% per year. You believe that in 10 years the office building could be sold for $7.4 million. The appropriate discount rate for investments of this type is 12%. What is the most you should be willing to pay for the office building today?© BrainMass Inc. brainmass.com October 16, 2018, 8:42 pm ad1c9bdddf
We have to find the present value of the inflows:
You are contemplating the purchase of an office building. Next year net rental income will be $400,000, which will grow at 4% per year.
You believe that in 10 years the office building could be sold for $7.4 million. The appropriate ...
The present value of the inflows is found.
Net Present Value and Net Cash Folws
The confectioner corner Inc. would like to buy a new machine that automatically dips chocolates. The dipping operation is currently done largely by hand. The machine the company is considering costs $100,000. The machine would be usable for 10 years but would requirement of several key parts at the end of the fifth year. These parts would cost $7000, including installation. After 10 years, the machine could be sold for $6000.
The company estimates that cost to operate the machine will be $6500 per year. The present method of dipping costs $24000 per year. In addition to reducing costs, the new machine will increase the production by 5,500 boxes of chocolate per year. The company realizes a contribution margin of $2.10 per box. An 18% rate of return is required on all investments.
1. What are net cash inflows that will be provided by the new dipping machine ?
2. Compute the new machine's net present value. Use the incremental cost approach and round all dollar amounts to nearest whole numbaers