Apublisher is deciding whether or not to invest in a new printer. the printer would cost $900, and would increase the cash flows in year 1 by $500 and in year 3 by $800. cash flows do not change in year 2. if the interest rate is 12% if the interest rate is 25%, but cash flows change such that the investment renders a cash flow of $500 in year 1 and $800 in year 2 instead of year 3, would the investment take place?

If the interest rate is 12% and the cash flow in year 1 is 500 and 800 in year 3 we will discount these 2 payments buy 12% and if the present value of these 2 payments is more than 900 than the investment is worthy

500/1.12=446.42+

800/1.12^3= 569.42

==1015.85

The present values of the cash flow (1015.85) are more than the initial investment (900) therefore the publisher should invest.

If the interest rate is 25% and the cash flows are 500 in year 1 and 800 in year 2 we need to discount these by 25% and see if the present value of the cash flows are more or less than 900 which is the initial investment.

500/1.25=400+

800/1.25^=512

=912

912 is the present value of cash flows which is more than the initial investment of 900 therefore the investment would have taken place.

Explanation:

income statement is prepared in order to show the profits and loss of a business. in order to prepare the income statement she should collect all the income and expenses of the product with the cost of production.

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