Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.91 million and create incremental cash flows of $832,145.00 each year for the next five years. The cost of capital is 9.61%. What is the net present value of the J-Mix 2000?
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=832,145[1-(1.0961)^-5]/0.0961
=832,145*3.82885934
=$3186166.16
NPV=Present value of inflows-Present value of outflows
=3186166.16-1,910,000
=$1276166.16(Approx).
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