Question

How much must be set aside at the end of each year by Speedway to replace a cash register every three years that cost $5,000 if the money will be invested into a sinking fund that carns 10% annual interest compounded annually?​

Answer 1

The PV of the cash inflows is $15,000/1.15 + $10,000/1.152 + $5,000/1.153 = $23,892.50.

Therefore, the NPV is -$25,000 + $23,892.50 = -$1,107.50.

Since the NPV of the project is negative, you would reject the project.

Explanation: