Xavier c. wants to purchase a machine for $37,000 with a four year life and $1,000 salvage value. Xavier requires an 8% return o
n investment. The expected year-end net cash flows are $12,000 in each of the four years. a) What is the machine's net present value (round to the nearest whole dollar?
A) First find the present value of annuity ordinary The formula is Pv=pmt [(1-(1+r)^(-n))÷r] Pv present value? PMT payment per year 12000 R rate of return 0.08 N time 4 years Pv=12,000×((1−(1+0.08)^(−4))÷(0.08)) pv=39,745
Net present value is 39745-37000=2745....answer
B) internal rate of return=initial investment÷net cash flow
internal rate of return=37000÷12000 internal rate of return=3.083
Now see internal rate of return factor (3.083) in 4 years line of the present value of an annuity if $1 table. 3.083 is closest to 3.037 Now see the corresponding interest rate written at the top of the column It's 12% Internal rate of return is 12%
Here's the link of the table http://www.accountingformanagement.org/present-value-of-an-annuity-of-1-in-arrear/
Sorry I couldn't upload the attachment because of the connection