Question

he Whitton Company uses a discount rate of 16%. The company has an opportunity to buy a machine now for $18,000 that will yield cash inflows of $10,000 per year for each of the next three years. The machine would have no salvage value. The net present value of this machine to the nearest whole dollar is: Group of answer choices $22,460. $4,460. $(9,980). $12,000.

Answer 1

NPV= 4,458.9 = 4,460

Step-by-step explanation:

Giving the following information:

Discount rate= 16%

Cash flows= $10,000

Initial investment= $18,000

To calculate the net present value (NPV), we need to use the following formula:

NPV= -Io + ∑[Cf/(1+i)^n]

∑[Cf/(1+i)^n]:

Cf1= 10,000 / 1.16= 8,620.7

Cf2= 10,000 / 1.16^2= 7,431.6

Cf3= 10,000 / 1.16^3= 6,406.6

∑[Cf/(1+i)^n]= $22,458.9

NPV= -18,000 + 22,458.9

NPV= 4,458.9 = 4,460