Determine maximum amount pigpen should be willing to pay

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Question - Pigpen Construction Inc. is considering the purchase of a backhoe. Pigpen's required rate of return is 7%. The expected net cash inflows generated by the new asset are as follows:

Years Amount Per Year Nature of the cash flow

1-4 $30,000 Net operating revenue

5-9 $25,000 Net operating revenue

10 $20,000 Net operating revenue

10 $10,000 Sale of asset

Required: Assuming the net cash inflows can be realized and occur at the end of each period, determine the following:

1. The maximum amount Pigpen should be willing to pay for the backhoe.

2. The amount at which the backhoe should be recorded at date of acquisition.

Reference no: EM132230378

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