Question

The following present value factors are provided for use in this problem.

Periods Present Value of $1 at 8% Present Value of anAnnuity of $1 at 8%
1 0.9259 0.9259
2 0.8573 1.7833
3 0.7938 2.5771
4 0.7350 3.3121


Xavier Co. wants to purchase a machine for $37,700 with a four year life and a $1,100 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,700 in each of the four years. What is the machine's net present value (round to the nearest whole dollar)?

(A) $5,173.
(B) $4,364.
(C) $42,873.
(D) $(5,173).
(E) $(4,364).

Answer 1

Answer is (A) $5,173

Step-by-step explanation:

In calculating the net present value of an investment we discount the future cash flows by multiplying the future cashflows by the discounting factors attached to each year the cashflows will arise.

See Attachment for calculation done.