$274,381 is the maximum price Dexter should pay for this equipment
Solution:
Given ,
The equipment will produce the following cash flows:
Year 1 $120,000
Year 2 $200,000
Present value = Future inflows * Present value of discounting factor (10%,time period)
= [tex]\frac{120,000}{1.1}[/tex] + [tex]\frac{200,000}{(1.1)^{2} }[/tex]
= $274,381 (Approx)
$274,381 is the maximum price Dexter should pay for this equipment
