Question

A company is considering the purchase of new equipment for $51,000. The projected annual net cash flows are $21,200. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 10% return on investment. The present value of an annuity of $1 for various periods follows: Period Present value of an annuity of $1 at 10% 1 0.9091 2 1.7355 3 2.4869 What is the net present value of this machine assuming all cash flows occur at year-end

Answer 1

$1721.26

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 = -$51,000

Cash flow in year 1 to 3 = $21,200

I = 10%

NPV = $1721.26

To find 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