Managers at Eller Manufacturing are considering purchasing a new refrigerated delivery truck that Adaptive Practice Managerial, 8e will produce equal annual cash flows of $36,000 for 6 years. The trucks net present value is $12,780, its c is $144,000, its useful life is 6 years, and its annual depreciation expense (no salvage value) įs$24,000, what is the discount rate used by Eller to evaluate this project? Present Value of an Annuity of 1
Col1 Period 8% 9% 10% 11% 12% 15%
Col2 6 4.623 4.486 4.355 4.231 4.111 3.784
A. 11%
B: 12%
C) 1096
D) 9%

The discount rate the Managers at Eller Manufacturing used to evaluate the purchase of the new refrigerated delivery truck is C) 10%.

Explanation:

Annual cash inflows $36,000

Period of cash inflows = 6 years

Cash outlay (initial investment) = $144,000

Depreciation expense = $24,000

Estimated useful of trucks = 6 years

Net present value = $12,780

Present Value Annuity Factor at 10% for 6 years = 4.355

Present Value of Annuity cash inflows = $156,780 ($36,000 x 4.355)

Less initial investment cash outlay = $144,000

Net present value = $12,780 ($156,780 - $144,000)

Correct Question Options:

A. 11%

B: 12%

C) 10%

D) 9%

Thus, 10% as the discount rate yields the given net present value of $12,780, which the other discount rates do not.

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