Question

Consider a piece of equipment for which the expenditure at the beginning of period 1 is $30,000 The net cost at the end of year 1 is $6,000. The net cost at the end of year 2 is $8,000. The net cost at the end of year 3 is $10,000. The net cost at the end of year 4 is $5,000. With an interest rate of 4%, what is the net present value of this cost stream at the beginning of period 1

Answer 1

NPV= -56,329.66

Step-by-step explanation:

Giving the following information:

Consider a piece of equipment for which the expenditure at the beginning of period 1 is $30,000 The net cost at the end of year 1 is $6,000. The net cost at the end of year 2 is $8,000. The net cost at the end of year 3 is $10,000. The net cost at the end of year 4 is $5,000.

To calculate the net present value we need to use the following formula:

NPV= -Io - ∑[Cf/(1+i)^n]

Cf= cash flow

In this case, it is all negative because it is all cost.

Year 1= 6,000/1.04= 5,769.23

Year2= 8,000/ 1.04^2= 7,396.45

Year 3= 10,000/ 1.04^3= 8,889. 96

Year 4= 5,000/ 1.04^4= 4,274.02

NPV= -30,000 - 26,329.66= -56,329.66