Question

What would be the net present value of a new washing machine that costs 800 and will save you 150 a year in time away and laundry mat costs? Assume an average return on your savings of 5

Answer 1

The net present value (NPV) of the washing machine is -$657.14.

Step-by-step explanation:

The net present value (NPV) of a new washing machine can be calculated by subtracting the initial cost of the washing machine from the present value of the annual savings generated by it over its lifetime. In this case, the washing machine costs $800 and saves $150 per year in time away and laundry mat costs. Assuming an average return on savings of 5%, we can calculate the present value of the annual savings using the formula:

Present Value = Annual Savings / (1 + Interest Rate)^Years

Using this formula, the present value of the annual savings is:

Present Value = $150 / (1 + 0.05)^1 = $142.86

Therefore, the net present value of the new washing machine is:

NPV = Present Value - Initial Cost = $142.86 - $800 = -$657.14