How do you calculate NPV of an investment that a company is financing? The machine cost...
How do you calculate NPV of an investment that a company is financing? The machine cost 400,000. will pay 4.15% and the payment will be $16,600 a month and 5,000 for yearly maintenance. The life of the machine is 10 years.
Homework Answers
| Monthly payment =$16,600 | ||
| Monlty interest rate =4.15% | ||
| Period =10 years =10*12=120 Months | ||
| Present value of cash flows =Annuity factor at 4.15% for 120 periods =23.91322 | ||
| Present value of cash flows of 16600=$16000*23.91322=$382611.50 | ||
| yearsly maintanace =5000 per year | ||
| Years interest rate =4.15%*12 =49.80% | ||
| Present value of cash flows =Annuity factor at 49.80% for 10 periods =1.9727 | ||
| Present value of cash flows of 5000=$5000*1.9727=$9863.50 | ||
| Total Present value of Cash Inflows =$382611.50+$9863.50=$392,475 | ||
| Net present value of investment | Amount in $ | |
| Total present value of Cash inflows | 392475 | |
| Less : Cost of invesment | -400000 | |
| Net present value | -7525 | |
| NPV of Invesent is $(7525) | ||
| this investment is generating Negitive NPV , it not financially Viable. | ||
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