Question

The management of Tony Corporation is considering the purchase of a new machine costing $400,000. No residual value is expected. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information the following data is available. Year Income from Operations Net Cash Flow 1 $100,000 $180,000 2 40,000 120,000 3 20,000 100,000 4 10,000 53,000 5 10,000 71,000 The net present value for this investment is: Group of answer choices positive $55,200 positive $18,130 Negative $126,810 Negative $99,630

Answer 1

positive $18,130

Step-by-step 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 = $-400,000

Cash flow in Year 1 = $180,000

Cash flow in 2 = 120,000

Cash flow in 3= 100,000

Cash flow in 4 = 53,000

Cash flow in 5 = 71,000

I = 10%

NPV = $18,130

To determine 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