Compute maximum price to pay for equipment
Goltra Company is considering purchasing equipment. The equipment will produce the following cash flows: Year 1, $30,000 ;Year 2, $40,000; Year 3, $50,000. Golta requires a minimum rate of return of 12%. What is the maximum price Golta should pay for this equipment?
This is what I got
n=3, I= 12%
120,000x 0.71178=85413.6 (present value of a single amount)
14,400x2.40183=34586.352 (present value of annuity)
maximum price is 85413.6+34586.352= 119,999.952
I am not sure if 120,000 is right, I just added the cash flows (30,000+40,000+50,000). I got 14,400 from 120,000 x 0.12.
Please help me with this problem! Thank you!
