Question

A machine costs $1,000 and has a 3-year life. the estimated salvage value at the end of three years is $100. the project is expected to generate after tax-cash flows of $600 per year. if the required rate of return is 10%, what is the npv of the project? (do not round intermediate computations. round final answer to the nearest whole number.)

Answer 1

Cost of machine = $1,000

$NPV of revenues = p( \frac{1- (1+RoR)^{-n} }{RoR} )$ = $600( \frac{1- (1+0.1)^{-3} }{0.1} )$ = $1,492.11

$NPV of salvage value = FV ( \frac{1}{ (1+RoR)^{n} }$ )= $100( \frac{1}{ (1+0.1)^{3} } )$ = $75.13

Total NPV = -1000+1492.11+75.13 = $567.24 ≈ $567