Time Value of Money

Concept:Compare the present value of future cash inflows with the initial cost using the borrowing rate.Explanation:Initial cost = Rs. 50,000.Annual contribution = Rs. 12,000 for 5 years.Discount rate = 10% per annum.Present value of inflows = $12000 \times \frac{1 - (1.10)^{-5}}{0.10}$.$(1.10)^5 = 1.61051$, so $\frac{1}{1.61051} = 0.62092$.Annuity factor = $\frac{1 - 0.62092}{0.10} = \frac{0.37908}{0.10} = 3.7908$.PV = $12000 \times 3.7908 = 45,489.6$.Since Rs. 45,489.6 < Rs. 50,000, the machine's present value of benefits is less than cost.Thus, purchasing is not financially beneficial.Answer:Should not be purchased.