Question

Marinis Corporation is considering buying a brand new machine and has gathered the following data: Investment Estimated te Estimated annual cash inflows Estimated annual cash outflows $104,100 5 years $29,500 $10,300 Salvage value for the machine is estimated to be zero. Click here to view PV table. Your answer is partially correct. Try again. Calculate the net present value of the machine assuming a 6% discount rate. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124. Round present value answer to o decimal places, e.g. 125.) 23229 Net Present Value Should the company buy the machine based on your results? I No LINK TO TEKT Your answer is partially correct. Try again. Further investigation reveals that there would be a sales increase of $7,100 annually as a result of an increase in quality from the customer's perspective and a cost reduction of $2,800 annually as a result of lo warranty claims. Considering these additional facts, calculate Present Value of the machine. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124. Round present value answer to o decimal places, e.g. 125.) Net Present Value

Answer 1

1)

Net cash inflows = Estimated annual cash inflows - Estimated annual cash outflows

= $29,500 - $10,300

= $19,200

The present value of annuity at 6% for 5 years is 4.21236

Present value of Net cash inflows = $19,200 X 4.21236 = $80,877

NPV = Present value of Net cash inflows - Investment

= $80,877 - $104,100

= -$23,223

2)

Total Net cash inflows = $19,200 + Increase in sales - Reduction in cost

= $19,200 + $7,100 + $2,800

= $29,100

The present value of annuity at 6% for 5 years is 4.21236

Present value of Net cash inflows = $29,100 X 4.21236 = $122,580

NPV = Present value of Net cash inflows - Investment

= $122,580 - $104,100

= $18,480