Question

Raindrip Corp. can purchase a new machine for​ $1,875,000 that will provide an annual net cash flow of​ $650,000 per year for five years. The machine will be sold for​ $120,000 after taxes at the end of year five. What is the net present value of the machine if the required rate of return is​ 13.5%.

Answer 1

Answer:

The net present value of the machine if the required rate of return is​ 13.5% is $447,292

Explanation:

Year      Cash Flows        PV Factor at 13.5%             Net Present Value

0            ($1,875,000)                  1                                   ($1,875,000)

1               $650,000               0.881057269                   $572,687.22

2              $650,000                0.776261911                     $504,570.24

3               $650,000               0.683931199                    $444,555.28

4               $650,000               0.602582554                  $391,678.66

5               $650,000               0.530909739                  $345,091.33

5               $120,000                0.530909739                   $63,709.17

Net Present Value                                                             $447,292

therefore, The net present value of the machine if the required rate of return is​ 13.5% is $447,292