Question #43869

A small business is considering purchasing a new machine that is projected to yield savings in monetary terms of £1,000 per year over a period of ten years. Using a 12 percent discount rate, calculate the present value of the savings (Hint: assume that the savings occur at the end of each year).

Expert's answer

Present Value = C ÷ (1 + r)^n,

Where C - Cash flow at a period; r - rate of return and n - number of

periods.

PV =£10,000 ÷ (1 + 0.12)^10 = £3219.73

Where C - Cash flow at a period; r - rate of return and n - number of

periods.

PV =£10,000 ÷ (1 + 0.12)^10 = £3219.73

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