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Kelly Co.  can purchase a new machine for $30,000 that will provide net cash inflows of $12,000 for five years...

Kelly Co.  can purchase a new machine for $30,000 that will provide net cash inflows of $12,000 for five years, after which the machine will be sold for junk for $1,500. The present value of $1 at 12% received after 5 periods is 0.56743, and the present value of an annuity of $1 for 5 periods at 12% is 3.60478. What is NPV at 12%?

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Answer #1

Present value of inflows=12,000*Present value of annuity factor(12%,5)+$1500*Present value of discounting factor(12%,5)

=12,000*3.60478+1500*0.56743

=44108.505

NPV=Present value of inflows-Present value of outflows

=44108.505-$30,000

=$14108.505(Approx).

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