The following present value factors are provided for use in this problem. Periods Present Value of...
The following present value factors are provided for use in this
problem.
| Periods | Present Value of $1 at 8% |
Present Value of an Annuity of $1 at 8% |
||||
| 1 | 0.9259 | 0.9259 | ||||
| 2 | 0.8573 | 1.7833 | ||||
| 3 | 0.7938 | 2.5771 | ||||
| 4 | 0.7350 | 3.3121 | ||||
Cliff Co. wants to purchase a machine for $48,000, but needs to
earn an 8% return. The expected year-end net cash flows are $17,000
in each of the first three years, and $21,000 in the fourth year.
What is the machine's net present value?
Homework Answers
Net Present Value (NPV) of the Machine
|
Year |
Annual Cash Flow ($) |
Present Value factor at 8% |
Present Value of Cash Flow ($) |
|
1 |
17,000 |
0.9259 |
15,740.30 |
|
2 |
17,000 |
0.8573 |
14,574.10 |
|
3 |
17,000 |
0.7938 |
13,494.60 |
|
4 |
21,000 |
0.7350 |
15,435.00 |
|
TOTAL |
59,244.00 |
||
Net Present Value (NPV) = Present Value of annual cash inflows – Initial Investment
= $59,244.00 - $48,000
= $11,244.00
“Hence, the Net Present Value (NPV) of the Machine will be $11,244.00”
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The following present value factors are provided for use in this
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