Question

The purchase of a new machine costing $20,000 provides $10,000 cash inflow each year for the next 4 years. The discount factors at a 10% rate are year one 0.91; year two 0.83; year three 0.75; year four 0.68. What is the net present value of the investment?

Answer 1

Given data $ 20,000 present value of cash outflow = Discounting rate = 10% = $ 10,000 Net Annual cash inflow Discount factors @ 107. Year I year 2 0.9) 0.83 0.75 0.68 year 3 Year 4 calculation of present value of cash inflows Annual cash inflow Discount factor @ 10% Discounted cash inflow year $ 10,000 0.91 $ 9100 0.83 $ 8300 year 2 $ 10,000 year 3 $ 10,000 0.75 $ 7,500 year 4 $10,000 0.68 $ 6,800 poesent value of cash in how => $ 31,700 calculation of Net present value of Investment - Net present value - present value of cash inflow present value of cash outflow = $ 31,700 - $ 20,000 Net present value = $ 11,700