Question

John Company could buy a machine that costs $72,000. It is estimated that it earn nothing until year five, then earn $150,000 in year 5. If the discount figures are .567 for cash received at the end of five years and 3.605 for payments received every year for five years, what is the net present value for this machine

Answer 1

$13,050

Step-by-step explanation:

Net present value is a method of capital budgeting.

Net present value is the present value of after-tax cash flows from an investment less the amount invested.

Net present value = (cash flow in year 5 x year 5 discount rate) - Initial Investment

($150,000 x 0.567) - $72,000

85,050 - $72,000 = $13,050