Question

The following refers to a purchase of a machine by a company on January 1, 2021:

Salvage Value: $7,500

Life: 6 years

Desired Rate of Return 4%

Interest Compounded: semi-annually

Maximum amount the company can pay $32,348



What is the semi-annual net cash flow the company must achieve in order for the purchase to be made?

Answer 1

The semi-annual net cash flow that the company must achieve in order for the purchase to be made is $5041.

How to calculate the cash flow?

Maximum amount that can be invested = $32348.

Less: Present value of salvage value = $5927

Present value of cash inflow = $32348 - $5927 = $26421.

Net cash flow will be:

= $26421 / PV factor

= $26421/5.242

= $5041

In conclusion, the correct option is $5041.

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