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Pharoah, Inc. management is considering purchasing a new machine at a cost of $4,050,000. They expect...

Pharoah, Inc. management is considering purchasing a new machine at a cost of $4,050,000. They expect this equipment to produce cash flows of $893,690, $817,950, $988,030, $1,106,600, $1,330,760, and $1,193,800 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment? (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.)

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Answer #1

Solution:

NPV = Present value of cash inflows - Present value of cash outflows

Present value of cash inflows = 8,93,690/(1.15) + 8,17,950/(1.15)^2 + 9,88,030/(1.15)^3 + 11,06,600/(1.15)^4 + 13,30,760/(1.15)^5 + 11,93,800/(1.15)^6

Present value of cash inflows= $7,77,121.74 + $6,18,487.71 + $6,49,645.76 + $6,32,702.14 + $6,61,622.91 + $5,16,112.68= $38,55,692.94

NPV = $38,55,692.94 - $40,50,000= -$1,94,307.06

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