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Answer :
Steamboat Springs Furniture, Inc. is considering purchasing a new finishing lathe for $61,109.00. Over five years, the lathe is expected to generate $98,094.00 in annual revenues.
To determine the profitability of this investment, we need to consider the net present value (NPV). To calculate the NPV, we need to discount the future cash flows back to present value. Assuming a discount rate of 10%, we can use the formula:
NPV = (Revenue1 / (1 + Discount Rate)^1) + (Revenue2 / (1 + Discount Rate)^2) + ... + (Revenue5 / (1 + Discount Rate)^5) - Cost.Using the given revenue and cost values, we can substitute them into the formula:
NPV = ($98,094.00 / (1 + 0.10)^1) + ($98,094.00 / (1 + 0.10)^2) + ($98,094.00 / (1 + 0.10)^3) + ($98,094.00 / (1 + 0.10)^4) + ($98,094.00 / (1 + 0.10)^5) - $61,109.00
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