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mezya [45]
3 years ago
15

MC Qu. 112 A company is considering... A company is considering the purchase of new equipment for $105,000. The projected annual

net cash flows are $41,000. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 8% return on investment. The present value of an annuity of $1 for various periods follows: Period Present value of an annuity of $1 at 8% 1 0.9259 2 1.7833 3 2.5771 What is the net present value of this machine assuming all cash flows occur at year-end
Business
1 answer:
Alina [70]3 years ago
3 0

Answer:

Net Present Value =  $660.98  

Explanation:

<em>The Net present value (NPV) is the difference between the Present value (PV) of cash inflows and the PV of cash outflows. A positive NPV implies a good and profitable investment project and a negative figure implies the opposite. </em>

NPV of an investment:  

NPV = PV of Cash inflows - PV of cash outflow  

<em>PV of cash inflow = A× (1- (1+r)^(-n))/r </em>

A- annul cash inflow, r- 8%, n- 3

PV of cash inflow= 41,000× (1- 1.08^(-3))/0.08

=   105,660.98  

Initial cost = 105,000

NPV =  105,660.98  - 105,000

= $  660.98  

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