If a production machine costs $18,000, and we are able to set up the following payment arrangements with the bank:
Number of payments = 4 (one at the end of each year)
Interest Rate = 5%
Amount of each annual payment = $5,000
Questions:
1. What is the present value of the stream of cash flows (the series of payments)?
2. Will we be provided with enough purchasing power at the present time to be able to purchase the machine?