Solution-What must the annual cash flow be for this

What must the annual cash flow be for this equipment

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Reference no: EM133059389

Question - Blake Construction is investing in new equipment to lay asphalt for roads and parking lots. Blake is will purchase the new equipment either from John Deer or Caterpillar.

After-tax cash inflows for the equipment are as follows:

Year	John Deere	Caterpillar
1	425,000	135,000
2	375,000	135,000
3	270,000	360,000
4	230,000	450,000
5	185,000	500,000

1) In both cases, the equipment has an initial investment of $750,000.

In both cases, assume that the equipment has a life of 5 years with no salvage value.

Assuming a discount rate of 8%, compute the net present value of each piece of equipment.

2) A third option has surfaced for equipment purchased from another supplier.

The cost also is $750,000, but this equipment will produce even cash flows over its 5-year life.

What must the annual cash flow be for this equipment to be selected over the other two? Assume a 8% discount rate.

Reference no: EM133059389

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What must the annual cash flow be for this equipment

Reference no: EM133059389

Reference no: EM133059389

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