Question

A machine costs $1,000 and has a 3-year life. the estimated salvage value at the end of three years is $100. the project is expected to generate after tax-cash flows of $600 per year. if the required rate of return is 10%, what is the npv of the project? (do not round intermediate computations. round final answer to the nearest whole number.)

Answer 1

Cost of machine = $1,000


`NPV of revenues = p( (1- (1+RoR)^(-n) )/(RoR) )` =
`600( (1- (1+0.1)^(-3) )/(0.1) )` = $1,492.11


`NPV of salvage value = FV ( (1)/( (1+RoR)^(n) )` )=
`100( (1)/( (1+0.1)^(3) ) )` = $75.13

Total NPV = -1000+1492.11+75.13 = $567.24 ≈ $567