Answer:
The options are:
a. negative $28,940 b. positive $28,940 c. zero d. positive $300,000
The correct option is A,-$28,940
Explanation:
The net present value of proposed purchase of new piece of equipment is the present of cash inflows minus the initial purchase cost of the equipment of $900,000
The inflows would be discounted using the discount rate given as 10%
The discount factor=1/(1+r)^n
r is the hurdle rate of 10%
n is the year to which the inflow relates.
net present value=-$900,000+$200,000/(1+10%)^1++$200,000/(1+10%)^2++$200,000/(1+10%)^3++$200,000/(1+10%)^4++$200,000/(1+10%)^5++$200,000/(1+10%)^6=
-$28,947.86
$28,940 is the closest to $28,947.86
