Question

Question 4 of 4 A company is evaluating the feasibility of investing in machinery to manufacture an automotive component. It would need to make an investment of $580,000 today, after which, it would have to spend $8,000 every year starting one year from now, for twelve years. At the end of the period, the machine would have a salvage value of $9,000. The company confirmed that it can produce and sell 7,200 components every year for twelve years and the net return would be $13.20 per component. The company's required rate of return is 7.00%. a. What is the Net Present Value (NPV) of this investment option? Round to the nearest rent 1

Answer 1

NPV = $636,832

Invest is Feasible - Yes

Year	Cash Outflow	Discount Factor @7%	Discounted Cash Outflow	Cash Inflow	Discount Factor @7%	Discounted Cash Inflow
1	58000	1	58000	95040	0.934	88767.36
	8000	0.934	7472
2	8000	0.873	6984	95040	0.873	82969.92
3	8000	0.816	6528	95040	0.816	77552.64
4	8000	0.762	6096	95040	0.762	72420.48
5	8000	0.712	5696	95040	0.712	67668.48
6	8000	0.666	5328	95040	0.666	63296.64
7	8000	0.622	4976	95040	0.622	59114.88
8	8000	0.582	4656	95040	0.582	55313.28
9	8000	0.543	4344	95040	0.543	51606.72
10	8000	0.508	4064	95040	0.508	48280.32
11	8000	0.475	3800	95040	0.475	45144
12	8000	0.444	3552	95040	0.444	42197.76
				9000	0.444	3996
Discounted Cash Outflow	121496	Discounted Cash Inflow	758328.48

NPV = Discounted Cash Inflow - Discounted Cash Outflow = 636,832

Note :

Inflow per Year = 7200 units * 13.2 per unit = $95,040