Question

The following present value factors are provided for use in this problem. Periods Present Value of $1 at 8% Present Value of an Annuity of $1 at 8% 1 0.9259 0.9259 2 0.8573 1.7833 3 0.7938 2.5771 4 0.7350 3.3121 Xavier Co. wants to purchase a machine for $37,000 with a four year life and a $1,000 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,000 in each of the four years. What is the machine's net present value

Answer 1

The multiple choices are:

$3,480.

$2,745.

$40,480.

($3,480).

($2,745).

The correct option is $3480

Step-by-step explanation:

The net present of the value is the present value of the cash inflows minus the initial cash outflow.

The initial cash outflow is $37,000

cash inflows from year 1 to 3 is $12,000

cash inflows in year 4 is $13,000 (actual cash inflow+salvage value of $1000)

present of value of the first three years' cash flow=$12,000*present value of annuity for the first three years(2.5771)

present value of cash inflow for the first three years=$12,000*2.5771=$ 30,925.20

present value of year 4 cash inflow=$13,000*0.7350=$9,555

Total present value of cash inflows=$30,925.20+$9,555=$ 40,480.20

NPV = $40,480.20-$37,000=$3480.20