Question

Stratford Company purchased a machine with an estimated useful life of seven years. The machine will generate cash inflows of $90,000 each year over the next seven years. If the machine has no salvage value at the end of seven years, and assuming the company's discount rate is 10%, what is the purchase price of the machine if the net present value of the investment is $170,000

Answer 1

The price o the machine is = $268,157.69

Step-by-step explanation:

The Net present value is the difference between the present value (PV) cash inflows and the initial cost of the investment.

PV of cash inflow =

90,000× (1- (1.1)^(-7) )/0.1

= 438,157.69

NPV = PV of cash inflow - cost of the machine

Let represent cost of the machine as " y "

170,000 = 438,157.69 - y

y = 438,157.69- 170,000

y = 268,157.69

The price o the machine is = $268,157.69