Question

The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $48,000. The annual cash flows have the following projections. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Cash Flow 1 $ 18,000 2 22,000 3 25,000 4 12,000 5 7,000 a. If the cost of capital is 9 percent, what is the net present value of selecting a new machine

Answer 1

Answer:

$19,385.93

Explanation:

Net present value is the present value of after-tax cash flows from an investment less the amount invested.  

NPV can be calculated using a financial calculator  

Cash flow in year 0 = $-48,000.

Cash flow in year 1 = $18,000.

Cash flow in year 2 = $22,000.

Cash flow in year 3 = $25,000.

Cash flow in year 4 = $12,000.

Cash flow in year 5 = $7,000.

I = 9%

NPV = $19,385.93

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute