Question

The following present value factors are provided for use in this problem: Norman Co. wants to purchase a machine for $40,000 but needs to earn an 8% return. The expected year-end net cash flows are $12,000 in each of the first three years and $16,000 in the fourth year. What is the machine's net present value (rounded to the nearest whole

Answer 1

$2,685

Step-by-step explanation:

Calculation to determine the machine's net present value

NET PRESENT VALUE

Year Cash flow*Discount factor at 8% =Discounted Cash flows

0 $ -40,000*1= $-40,000

1 $ 12,000*0.9259= $11,111

2 $12,000*0.8573=$10,289

3 $ 12,000* 0.7938=$9,526

4 $16,000*0.7350=$11,760

NET PRESENT VALUE $2,685

($-40,000+$11,111+$10,289+$9,526+$11,760)

Therefore the machine's net present value is $2,685