Question

Apricot Corporation has decided to buy a new glazing machine for its factory. The machine's cost is $50,000 and the expected income from the machine for next 3 years are $19,000, $25,000 and $30,000. If the machine's expected rate of return is 8%, then its net present value is _____.

Answer 1

Answer:

$12,841.03

Explanation:

Given:

Initial Investment = $50,000

1st year expected income = $19,000

2nd year expected income = $25,000

3rd year expected income = $30,000

Expected rate of return = 8% = 8/100 = 0.08

Net present value = ?

Computation of net present value:

Net present value = $C0 + \frac{C1}{(1+r)^1}+ \frac{C2}{(1+r)^2}+ \frac{C3}{(1+r)^3}$

$50,000 + \frac{19,000}{(1+0.08)^1}+ \frac{25,000}{(1+0.08)^2}+ \frac{30,000}{(1+0.08)^3}\\\\50,000 + \frac{19,000}{(1.08)^1}+ \frac{25,000}{(1.08)^2}+ \frac{30,000}{(1.08)^3}\\\\50,000 + \frac{19,000}{(1.08)}+ \frac{25,000}{(1.1664)}+ \frac{30,000}{(1.259712)}\\\\50,000 + 17,592.5926+ 21,433.4705+ 23,814.9672\\\\112,841.03$

Net present value = $112,841.03